Global Macro Trading Journal

[Daal]

The governments don't rule the world, Goldman Sachs rule the world
-Alessio Rastani

ironically, there are no underwriters in the Spotify IPO
"There are no underwriters. Consequently, prior to the opening of trading on the NYSE, there will be no book building process and no price at which underwriters initially sold shares to the public to help inform efficient price discovery with respect to the opening trades on the NYSE. Therefore, buy and sell orders submitted prior to and at the opening of trading of our ordinary shares on the NYSE will not have the benefit of being informed by a published price range or a price at which the underwriters initially sold shares to the public. "

So, apparently they are fine doing this without a investment bank 'stamp of approval'

 

[Daal]

All Spotify insiders except for 2 will be allowed to dump shares from day 1

"

None of our Registered Shareholders or other existing shareholders have entered into contractual lock-up agreements or other contractual restrictions on transfer, except for TME and Tencent. In an underwritten initial public offering, it is customary for an issuer’s officers, directors, and most of its other shareholders to enter into a 180 day contractual lock-up arrangement with the underwriters to help promote orderly trading immediately after listing. Consequently,any of our shareholders, including our directors and officers who own our ordinary shares and other significant shareholders, may sell any or all of their ordinary shares at any time (subject to any restrictions under applicable law), including immediately upon listing. If such sales were to occur in a significant quantum, it may result in an oversupply of our ordinary shares in the market, which could adversely impact the public price of our ordinary shares. See “—With the exception of TME and Tencent, none of our shareholders are party to any contractual lock-up agreement or other contractual restrictions on transfer. Sales of substantial amounts of our ordinary shares in the public markets by our founders, affiliates, or non-affiliates, or the perception that such sales might occur, could reduce the price that our ordinary shares might otherwise attain and may dilute your voting power and your ownership interest in us.”

 

[Daal]

I love Spotify, the service, but after reading a lot of the F1 filling, the business just looks downright awful. I will actually look to try to get a borrow allocation on IPO day to short (yes, its possible. I shorted TWTR on IPO day). It will be a day trade, maybe a swing trade, but this company doesn't look good at all from an economics perspective and from an insider ownership perspective (everybody seems to be looking to dump as soon as possible, no one agreed to lockup shares except Tencent, which is probably more interested in stealing technology/ideas/people than anything else)

 

[sss12]

I love Spotify, the service, but after reading a lot of the F1 filling, the business just looks downright awful. I will actually look to try to get a borrow allocation on IPO day to short (yes, its possible. I shorted TWTR on IPO day). It will be a day trade, maybe a swing trade, but this company doesn't look good at all from an economics perspective and from an insider ownership perspective (everybody seems to be looking to dump as soon as possible, no one agreed to lockup shares except Tencent, which is probably more interested in stealing technology/ideas/people than anything else)

Ever consider that maybe that is why GS is not their banker ?

 

[Daal]

Ever consider that maybe that is why GS is not their banker ?

It might very well be. These underwriters love to sit out there with huge bids to support the stock and give the impression that the IPO was a big success. When they heard that the Swedes all wanted to dump, maybe they said "you guys are on your own". I'm just guessing here. As a day/swing short trade it does look interesting, specially if one takes losses quickly if momentum shows up

 

[sss12]

It might very well be. These underwriters love to sit out there with huge bids to support the stock and give the impression that the IPO was a big success. When they heard that the Swedes all wanted to dump, maybe they said "you guys are on your own". I'm just guessing here. As a day/swing short trade it does look interesting, specially if one takes losses quickly if momentum shows up

well if the "swedes all want to dump their stock", what underwriter is going to subject their clients to that ?

 

[Daal]

well if the "swedes all want to dump their stock", what underwriter is going to subject their clients to that ?

This is from the Dropbox IPO prospectus
"Our executive officers, directors, and the holders of substantially all of our capital stock and securities convertible into or exchangeable for our capital stock have entered into market standoff agreements with us or have entered or will enter into lock-up agreements with the underwriters under which they have agreed or will agree, subject to specific exceptions, not to sell any of our stock for 180 days following the date of this prospectus"

That's probably the reason why Spotify doesn't have underwriters, insiders want to dump shares

 

[Daal]

And as far as the Dropbox IPO goes, I'm not sure if I will invest. The insiders seem to be more aligned with IPO buyers but I'm not seeing much of a moat in this business. The are competing with the best tech companies around (Amazon, Google, Apple and Microsoft), while at the same time offering a commoditized product (storage).

They have been able to do well by bulding a great user experience (which usually how tech companies build little monopolies) but it could be a flimsy advantage. There are still so many players and they all seem to be delivering a 'good enough' product. I use Microsoft's OneDrive and GoogleDrive, I see no reason why even to test Dropbox because those services are 'good enough' for me. This is not like Facebook or Google searches where you are pretty much forced to join their services because of network effects. I'm sure Dropbox got some network effects going on (apparently most of their paying users, use for work colaboration, so having the same app seems to be important for them) but they are not that strong. It certaintly doesn't look like a winner take all sector.

At least they are not like Spotify, being enslaved by their suppliers (storage is more like a commodity while Beyonce songs aren't), so as a result, they get to keep some good margins. Honestly, this could be a buy, I'm just not sure yet

 

[Daal]

Dropbox is a tough one, I want to like it because they got good margins and clients seem pretty happy about it but they got tough competitors

Furthermore on Google Play all of the above apps (except for iCloud which is not avaliable there) are rated 4.4 stars. In such a undifferentiated market, how can Dropbox shareholders do well over the long-run?

 

[Daal]

Its also noticeable that Dropbox IPO at $8-9B valuation will be a downround from its 2014 $10B private round valuation. So perhaps this is an example of the "Thiel rule" that companies on downrounds and flat rounds underestimate how much in trouble they are in. They had 4 years to show something that would convince markets that they can differentiate themselves from others, and they didnt seem do to that (in the meantime, the QQQs soared)
Since I'm still early in my tech investing game, I think I will pass on all down/flat rounds as a rule, so I wont be buying DBX