Right up front I have to say, I have never been a fan of IPO's. Wall Street loves them because there is lots of room for them to make money.
Quite frankly, when a stock comes out as an IPO, nobody really knows what the price is going to be. That is exactly why the price is so volatile during the initial period of being on the market. Just like a stock analyst values any stock, an investment banking house values the stock. Stock analysts are more often wrong than right in the short term. Do you really think an investment banking firm has special powers to pick the "right value"? Thinking that an investment bank has special powers is probably another behavioral bias that should be studied in behavioral economics.
Some people may think the investment banks have special powers of great insight, but this is just not true. They are making an educated guess. And that guess is most likely biased to the high side. Why? It fits their need to make money.
Ultimately, the collective marketplace will determine what the price will be. The investment banking house will price the offering as high as they can to make as much money for them and the founders. You don't want to go too high or it will not sell, but there is a LOT of wiggle room to make significant sums of money.
Spotify is skipping all the "hubbub" of the IPO market and going right to listing on an exchange. There is no investment bank(s) pushing the stock. No investment banking fees. Therefore, investment banks don't make their nice chunk of profits.
A direct listing of a stock (versus an IPO) is similar to a manufacturer skipping the middleman distribution network and going directly to the customer. How do the middlemen react to this? I can assure you that they aren’t happy with their channel being cut out.
If it goes well, there is the possibility that others will follow suit and skip the investment banks (and their high fees). Investment bankers surely are hoping the "listing" falls on flat its face because that would mark the beginning of the end of juicy profits.
This will be an interesting debut!
