This past week, streaming company Spotify Technology S.A. (NYSE:SPOT) began trading on the New York Stock Exchange, and has caused quite a frenzy in financial markets as investors piled into the IPO last Tuesday in droves, driving up the company’s stock price from an initial reference price of $132 U.S. per share to the $169 U.S. per share level, providing an initial lift of more than 28% to investors, signaling a significant amount of appetite for technology offerings in today’s investing environment.
Since Tuesday, however, shares of Spotify have settled down, with shares of the technology company closing the week around the $148 U.S. level, still approximately 10% above its initial public offering (IPO) price. With insiders still holding the majority of outstanding shares of Spotify, continued volatility can be expected as insiders decide how much, if any, of their positions they wish to liquidate in financial markets.
A number of analysts have pointed to the fact that Spotify will be under intense investor scrutiny over the next 12 months, with particular attention being paid to how well Spotify will be able to reduce costs and increase subscription revenue for its streaming services. Some have anticipated profitability by 2020, but as with other technology companies, building out a large subscription base is likely to take precedent over profitability fundamentals, at least for the next few years.
For fundamental long-term investors, I would recommend waiting to see how well Spotify is able to monetize its subscription base over the next year before jumping in.
Invest wisely, my friends.
