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Spotify didn’t want a flashy trading debut; the market delivered

Spotify shares closed about 10 percent below the opening price, at $149.01 each, valuing the startup at almost $27 billion.JUSTIN LANE/EPA/Shutterstock

It took more than three hours on Tuesday morning to get Spotify trading publicly, in a stock sale as unorthodox as streaming digital music once seemed.

Spotify Technology SA’s shares — sold via a direct listing rather than a traditional IPO — finally opened well after midday at $165.90 apiece in New York, with 5.6 million shares changing hands at that initial price, according to data compiled by Bloomberg.

They closed about 10 percent below the opening price, at $149.01 each, valuing the startup at almost $27 billion.

The modest moves could be seen as a sign that Spotify got its wish to avoid a tumultuous debut. A successful first day of trading for the 10-year-old company was never going to be judged on whether shares jumped 30 percent, which is the usual benchmark for a triumphant initial public offering. Instead, Spotify and its advisers wanted a more mundane outcome for its unusual listing, people familiar with the matter said before the shares started trading.

Yet questions are already being asked about whether the market valuation is sustainable, given that the price was set by a relatively small number of shares changing hands. Only about 30 million shares had traded as of 4:08 p.m. Since there are no restrictions on investors selling, there are more than 100 million tradable shares available in the market.

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Before the listing, Spotify’s best-case scenario was for modest intraday movement with trading volume similar to a typical IPO, in which 50 percent to 100 percent of tradable shares change hands, the people said. The worst would have been a stock that swung wildly or lacked the available shares to trade smoothly.

The atypical approach to trading is indicative of Spotify’s attitude to going public. The company has avoided the traditional IPO route at every stage. Instead of hoping for a first-day bump, its goal was to have the stock look like it would on a run-of-the-mill day — with shares trading efficiently with little volatility as soon as possible.

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One key aim ahead of the listing was to get existing shareholders who want to sell to agree to do so quickly, even before the opening price was set, the people said. That would help manage volatility and generate sufficient supply to ward off a liquidity squeeze, which could lead to a shortage of shares and a run up in the price.

At their opening price, shares traded well above the $48.93 to $132.50 range at which they had changed hands in private trades this year, according to a company filing. Compared to the $132-a-share reference price — a number set by the New York Stock Exchange that doesn’t denote an offering price or valuation, but is necessary to open the shares — the stock rose as much as 28 percent.

As the company prepared to go public, chief executive Daniel Ek made it clear that Spotify chose a direct listing to avoid “the pomp and circumstance” of an IPO. Still, the company has drummed up the most noise around a non-IPO listing since Google Inc. sold stock in a Dutch auction, in which investors submitted bids over the Internet, fax and telephone. And Spotify is poised to be of a comparable size as the search behemoth when it listed.

The listing crystallized 10-figure fortunes for cofounders Ek and Martin Lorentzon. Ek had a net worth of about $2.4 billion and Lorentzon a $3.4 billion fortune as of 2:15 p.m., according to the Bloomberg Billionaires Index.

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