Spotify Technology SA (NYSE:SPOT) launched its IPO earlier this month, and it’s been off to a sobering start so far. While the price opened at $165.90, as of the Wednesday’s close the stock was trading at less than $150, for a decline of 10% since Spotify started trading.
However, the problem with IPOs is that they present a large amount of uncertainty and risk. A lot of it comes down to pricing and how well the company is able to transition into being a publicly traded company. We saw Snap Inc (NYSE:SNAP) fly out of the gate when it was first listed, only to crash later and struggle ever since. Facebook, Inc. (NASDAQ:FB) was famously off to a very bad start after its IPO and it has gone on to become one of the top stocks on the NASDAQ.
The streaming music business is big, and that gives Spotify a lot of potential for growth. The problem is, there are many competitors in the industry and tech giants like Apple Inc. (NASDAQ:AAPL) and Alphabet Inc (NASADAQ:GOOG) offer similar products already. Spotify faces some big challenges against companies that have significant resources, and after seeing Snap fail to live up to its hype, it’s perhaps not a surprise that investors have been a little more hesitant when it comes to Spotify, although it currently does have a higher market cap.
Investors would be wise to wait until Spotify has had at least one earnings report under its belt to see just how the company is doing and how well its CEO is handling the pressure.
