Morning Commentary: Spotify convertible notes in focus, gain on swap in early trading

By Abigail W. Adams

Portland, Me., Feb. 3 – It was an active morning in the convertibles secondary space with the tech sector under pressure after a slew of disappointing earnings, most notably from Meta Platforms Inc., formerly known as Facebook Inc., reignited a sell-off in equities.

The Dow Jones industrial average was down 263 points, or 0.74%, the S&P 500 index was down 1.33%, the Nasdaq Composite was down 2.17% and the Russell 2000 index was down 0.50%.

There was $174 million in reported convertible bonds trading a little more than one hour into Thursday’s session.

However, Spotify Technology SA’s 0% exchangeable notes due 2026 accounted for about one-third of the volume on the tape as stock cratered following its earnings report.

While down on an outright basis, the 0% notes were holding up well and expanding on hedge, a market source said.

The 0% notes were down about 1.5 points outright with stock off 13% after reporting earnings.

The notes were marked at 86.375 bid, 86.875 offered versus a stock price of $162 early in the session, a source said.

They expanded about 0.75 point to 1 point dollar-neutral.

Spotify’s stock was changing hands at $166.03, a decrease of 13.52%, shortly before 11 a.m. ET.

Stock was crushed after the audio streaming and media services provider reported fourth-quarter earnings.

While the company beat analyst expectations on the top and bottom lines, stock sold off after the company declined to provide annual guidance.

Spotify reported a loss per share of 20 cents versus analyst expectations for a loss of 40 cents; revenue was $2.69 billion versus analyst expectations for revenue of $2.65 billion.

The media company has also been mired by a recent controversy surrounding its star podcaster Joe Rogan with several musicians pulling their music from the service due to some of Rogan’s anti-Covid vaccination statements.

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