Spotify has finally gone public on the New York Stock Exchange. Source: CNBC

Spotify has finally gone public on the New York Stock Exchange. The unconventional way in which the company did this has sparked a lot of curiosity among tech analysts and investors in the US. Nonetheless, Spotify which is trading under the ticker symbol SPOT soared 28% on Tuesday, clearing any doubts regarding its public offering. Unlike many other tech companies that use an IPO to go public, Spotify opted for a direct listing.

But how is a direct listing different from an IPO? What value does it add to Spotify?

Typically, when tech companies go public they float new shares in the market and work with a large Wall Street bank that underwrites the IPO. However, with direct listing, no new shares are floated. Only the shares held by private investors are available for purchase. In other words, a direct listing provides an opportunity for existing shareholders within Spotify to sell part or all of their stocks to the public.

Spotify opted for a direct listing. Source: CNBC

Spotify CEO Daniel Ek said that the decision to opt for a direct listing was inspired by the fact that Spotify has never been a normal company. According to Ek, even though the public offering puts Spotify on a bigger stage, it will not change how the company works, its identity, or what it stands for.

Spotify is one of the largest music streaming companies in the world with 71 million paying subscribers. This is almost double the number of Apple Music subscribers, Spotify’s number one competitor. Experts say that Spotify’s decision to bypass the big investment banks will save the company a lot of money in fees.

There were some initial concerns that floating a public offering without the support of investment banks would be relatively risky. However, based on the initial performance of the Spotify’s stock, it seems that the company is doing just fine.

Spotify has started off on the right foot. Source: NBC News

However, Spotify’s trading debut comes at a time when tech stocks have been on the slide. Facebook has taken the biggest hit so far losing 20% of its value after the privacy scandal involving the UK data company Cambridge Analytica. Amazon’s stock has also taken a nosedive as President Donald Trump continues his attacks on the online retail giant.

But a more reliable comparison to Spotify is Netflix. Both companies offer streaming services. Netflix shares at the time of writing this post were trading below the short-term average. But there’s still a lot of time left in 2018. Tech stocks could recover from this slump in the next few months but this will depend on many geopolitical and economic factors.

Spotify has started on the right foot but it’s still a very big test for the streaming company. Big investment banks in Wall Street are looking at company’s progress very carefully. If Spotify can pull off a public offering without the banks, it could set a precedent for direct listing that could be followed by other companies in the future. This is not a good news for traditional investment banks.