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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.

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.

Atypical Approach

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.

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.

Bloomberg Deals reporter Alex Barinka breaks down the beats of Spotify’s direct listing Source: Bloomberg

As the company prepared to go public, Chief Executive Officer 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 co-founders 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.

On the demand side of the equation, there are a number of reasons for investors to get excited about being able to buy the stock. Spotify offers investors their best opportunity to invest in the music business, which has rebounded of late from 15 years of decline. All three major record labels are either private or owned by large conglomerates, while Pandora Media Inc., owner of the world’s largest online radio service, is valued at just $1.2 billion.

Viable Business

Spotify can claim a lot of credit for the industry’s recovery. Paid streaming accounted for 40 percent of U.S. music industry sales last year. Spotify also offers a free service, but it accounts for a small fraction of its revenue. Spotify posted revenue of 4.1 billion euros ($5 billion) last year, up 39 percent from a year earlier. Yet it must still prove to investors that a music service can be a viable business. Losses have grown each of the past three years, reaching 1.2 billion euros in 2017, due in large part to the royalties paid to music rights holders.

The company was able to tell its story in a pre-listing investor day where it gave financial guidance, but it didn’t host the roadshow typical in a regular IPO. Spotify also skipped another key process in an initial public offering, where a set number of shares are sold at a specific price to a known list of investors before trading starts. Instead, the company’s first public share price was determined after the opening bell by the supply of shares that existing holders are willing to sell, as well as demand for them.

Spotify and its advisers couldn’t control every step of the process. The London-based company went public after weeks of volatile trading conditions for tech companies, as fears of a trade war as well as President Donald Trump’s anti-Amazon.com Inc. rhetoric roiled indexes. Still, markets played nice on Tuesday, with U.S. stocks rebounding from seven-week lows despite continued volatility.

No Guarantee

Spotify’s stock got off the ground with the help of advisers Goldman Sachs Group Inc., Morgan Stanley and Allen & Co. and designated market maker Citadel Securities LLC.

The advisers had to work a long list of existing investors to try to discern whether they might sell and at what price, with no guarantee that they wouldn’t change their minds on listing day. Those conversations with investors -- venture capitalists, institutional investors and family offices -- took more than six weeks, the people said.

They did the same with potential buyers, the people said. In addition to the familiar conversations about share price, they discussed the process itself and how to get shares in a tradable format, with buyers and sellers having the correct accounts.

— With assistance by Lucas Shaw

( Updates with trading details throughout. )