The Spotify IPO Will Launch on the NYSE, but There's a Better Profit Play

We now have confirmation the Spotify IPO is on track for either 2017 or the beginning of 2018.

And according to a May 12 Fortune report, the music streaming service will list shares on the New York Stock Exchange (NYSE).

Spotify IPOHowever, there's an interesting development with the Spotify initial public offering...

What the Spotify Direct Listing Means for Retail Investors

Spotify CEO Daniel Ek is planning a direct listing for Spotify stock. A direct listing will eliminate the need for a broker to underwrite the IPO, which will reduce fees. It will also allow employees to cash out their shares without underwriting fees.

And direct listings also have a major perk for retail investors.

Before a public offering, underwriters set an initial offering price for shares. That price is only offered to hedge funds, massively wealthy investors, and large institutions. It's also normally lower than what retail investors pay.

For example, well-connected investors were able to buy shares of Snap Inc. (NYSE: SNAP) for $17 per share. When the public was able to buy shares of SNAP on March 2, retail investors had to pay $24 per share.

However, all of that is avoided with a direct listing.

Trending: Top IPOs to Watch in 2017

According to CNBC, Spotify stock will have no predetermined price. Investors will only be able to buy shares of Spotify on the open market.

While this levels the playing field for retail investors, we still advise Money Morning readers to avoid investing in Spotify stock.

The company is still a money pit that shows no sign of profitability. There isn't data on Spotify's revenue for 2016, but Spotify has reported negative income from 2009 to 2015.

Spotify IPO date
However, I uncovered a backdoor strategy at the end of March that lets investors profit from the music streaming site without owning a single share of Spotify stock. This investment opportunity has netted gains of 35.68% since I first brought it to the attention of Money Morning readers on March 28.

If you missed it, that's okay. Over the next 12 months, this investment could climb another 88%.

This isn't on Wall Street's radar, which is why I had to make sure you knew about it today...

How to Net Market-Beating Gains Before the Spotify IPO

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In California, there's a little-known company called Hortonworks Inc. (Nasdaq: HDP) that is one of Spotify's major suppliers for data management. With a market cap just over $600 million, most investors haven't heard of this tech company.


How Hortonworks Operates

But that's okay - it means Money Morning readers will be the ones who could profit the most.

Hortonworks creates, distributes, and supports enterprise data management software solutions. Its Hortonworks Data Platform allows its customers to collect, store, process, and analyze existing data.

On top of all this, the data management expert even offers the Hortonworks Data Cloud for Amazon Web Services, which analyzes and processes data.

And because of its expertise, Hortonworks has an impressive client list that includes Bloomberg, eBay Inc. (Nasdaq: EBAY), and Expedia Inc. (Nasdaq: EXPE).

As of May 2017, 64% of the analysts covering HDP recommend it as a buy. That's up 8% from the 56% of analysts who recommended it as a buy in October 2016. And according to FactSet, the HDP stock price has an average one-year price target of $15.70.

That's a potential profit of 23.62% from today's opening price of $12.70 - and that's just a conservative estimate.

Northland Securities Inc. has a one-year price target of $24 per share, which means HDP shareholders could profit as much as 88.97% in the next 12 months.

The Bottom Line: Through a direct listing, the Spotify IPO creates an even playing field for all investors. There will not be a preset price that gives a discount to wealthy insiders. However, we still don't recommend owning shares of Spotify because the company hasn't proven it can be profitable. Instead, the better investment is to own shares of Spotify's data management provider, Hortonworks.

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