Spotify shares close down at $149 US in unconventional U.S. listing

The highly anticipated shares of music streaming serviceSpotifyclosed down at $149 US on its first day oftrading on the New York Stock Exchange on Tuesday after opening up at nearly $166.

The opening price was 26 per cent above the reference price of $132 a share set by the stock exchange on Monday, whichvaluedthe serviceat$29.5 billion. But the stock fell over10per cent in the afternoon.

Spotify'spublic listing is being closely watched by other companies,because the Swedish companystructured itsoffering to allow existing investors to sell directly to the public withoutlisting shares of its own.

Unlike a conventional Initial Public Offering (IPO), where a company hires an investment bank to underwrite the process by creating the new shares, pricing them and selling them to the public to raise money, the direct offering process bypasses a lot of those requirements, including the need foran underwriter.

The companytraded between $48.93 and $132 a share over the past yearthrough private transactions.

'The real price'

Chi-HuaChien, managing partner at California-based investment firmGoodwaterCapital, told Reuters that he thinks the company wastrading at a "fairmarket price."

"It's not manipulated or set byany puts and takes by banks or institutional investors. That'sthe real price, and I think that will be revealing to a lot ofcompanies."

Meanwhile, Kim Forrest, portfolio manager at Fort Pitt Capital Group in Pittsburgh, said it was interesting that Spotify'slisting wasn't done to raise money for itself.

"It's an interesting way to allow people who already holdthe stock to monetize it," he said.

But analysts pointed outthe listing saved Spotifytens of millions in fees and gave employees and early investors a chance to cash out.

John Coffee, director of corporate governance at Columbia University told the CBCNews that if the company hadlisted via anIPO, itwould have to pay seven per cent of the proceeds to underwriters.

"This direct listing will cost them only 10 to 15 per centof that amount that's a major cost saving," he said.

"They've come up with a system for getting liquidity for their employees and shareholders without having to take the more expensive and time consuming route of an IPO."

The listing comes at a time when other U.S. tech giants like Facebook and Amazon have seen their shares plummet amid scrutiny, weighing on the overall tech sector.

Spotify, which was foundeda decade ago,is the world's largest music streaming service andhas more than 71 million subscribers.

It, along with other notable music streaming services,havechanged the way the music industry makes money bygiving users access to largelibrariesof music.

Stock price volatility

Investors, meanwhile, will not know how successful the company's listing has been for another week or two, because of the volatility in the share price, said Coffee.

"Will the price remain relatively stable or jump up and down like a yo-yo?Most companies do fall after their IPO, but the difference is that there is no underwriter to stabilize the price," he said.

"In normal IPOs, the underwriters stabilize the pricethey put a floor under the pricebelow which the stock price won't fall, because the underwriters will buy it at that price."

With no similar mechanism in the Spotifylisting, it does expose the company's shares to a greater risk of volatility,Coffee added.