Spotify’s decision to go public on the New York Stock Exchange last week opened up new investment opportunities for the public and caught the attention of some students on Oklahoma Christian University’s campus.
Professor of Business Jody Jones said the story is significant because of the way Spotify went public. Jones said the music streaming service used a method called the Dutch auction, which means they went public through eBay. Because the company did not go through a bank, Spotify saved some money, but ran the risk of lower share prices, according to Jones.
Jones, who is also involved in the Oklahoma Christian Student Investment Fund, said the club considered investing in Spotify, but ultimately decided against it. He said this investment opportunity is unique because anyone can bid on shares rather than only “high net-worth clients.”
“Anytime a company goes public, it doesn’t have a track record,” Jones said. “It’s considered a speculative investment. It’s considered very risky. The bylaws of the Student Investment Fund limit [those investments] to 2 percent of their account, so they couldn’t put a lot of money [into Spotify] and they would’ve had to sell something to have cash to do that, so they chose not to do that.”
Senior John Caldwell serves as the investment officer for the Student Investment Fund and said Spotify’s stocks caught their attention, because it is a company students are familiar with. He said one of the reasons they chose not to invest was because the company still has a lot of losses they have not reversed yet.
“It was an interesting opportunity [to invest], because usually with an initial offering you have a chance to get a possibly very high return,” Caldwell said. “It didn’t fit our risk profile that we were trying to have for our fund, so we turned that down as an opportunity.”
Jones said he is not sure how this investment opportunity will impact customers or leverage Spotify against its competitors. He said it is too early to know exactly why Spotify chose to go public, but he said companies usually do so to raise money.
“I don’t know what they plan to do with that cash,” Jones said. “You have to do something with it where you can pay your shareholders back. Their shareholders are expecting to get paid something. I don’t know where their cash is going to come from, and they may have a great plan for that. It’s just not very apparent to me.”
Senior Jake Weith, who also works with the Student Investment Fund, said he considered personally investing in Spotify’s stock. He said the company is popular, which made him think it could turn out to be a good investment.
“A lot of kids our age use it and high school kids and stuff, so I knew there was a lot of room for growth, because our generation is like the biggest generation there is,” Weith said.
Ultimately, Weith said he decided not to invest in the music streaming giant and is not sure if he would consider it in the future. He said because the company is public now, he might be able to do more research on their financial history and make a decision from there.
“If I can see [Spotify’s] financials, I’d like to at least check them out again later,” Weith said. “I know whenever they offered [the stock], they offered it at like $132, and the day it came out, it was like $165. Basically, that could mean that the stock was undervalued. If they would’ve had someone, a professional, or if they would’ve done it in the conventional way, they might’ve been able to sell it for, I don’t know, a little bit higher and made more money from it.”
Jones said he thinks it will be interesting to see how Spotify’s initial public offering turns out, because it is surrounded by uncertainty. He said it will take time to see the results of the company’s decision.
“Depending on who you ask, it’s either the greatest idea ever or the worst idea ever,” Jones said. “In five years, people will look back and say, ‘It was great they did that,’ or, ‘It was terrible they did that.’ You’ll never know, because you don’t undo it and try it again.”