Spotify Investment Research

Company Overview: Spotify is a Swedish audio streaming and media services provider, founded in 2006 by Daniel Ek. Spotify offers digital copyright-restricted recorded music and podcasts, including more than 70 million songs, from record labels and media companies. By the end of 2021, Spotify is expected to operate in a total of 178 countries. Unlike physical or download sales, which pay artists a fixed price per song or album sold, Spotify pays royalties based on the number of artist streams as a proportion of total songs streamed. Numbers: The revenue from 2018 to 2020 was slowly increased from $1.14 billion to $2.16 billion. Especially the quarterly YoY revenue growth was relatively large. Although Spotify's EPS has rarely turned positive and has remained negative for almost three years now, other data reveals optimistic future. The company has a fixed asset turnover of 10%, higher than most of its competitors. The price to free cash flow is 266. It has a current ratio of 0.8, but this is up from 0.7 in 2019. The company has pivoted fast over the years, and that tenacity will allow it to move higher. Opportunities: The number of subscribers of Spotify is the largest among its competitors like Apple Music and Amazon Music. The number even hits 155 million last year which is largely higher than 72 million of Apple Music. With expanding its lineup of original content with podcasts, music content, sports, and entertainment, the growth of the number of subscribers still has a positive trend, and as it invests more in materials such as podcasts, it will have an edge. What’s more, the music streaming industry is growing substantially these years. Revenue is expected to show an annual growth rate (CAGR 2021-2025) of 9.69%, resulting in a projected market volume of US$33,372m by 2025. User penetration will be 8.3% in 2021 and is expected to hit 11.6% by 2025. Spotify, as the service that has the largest share, will grow with the industry. Risks: First, Content is expensive, and Spotify invests heavily in original and exclusive content (podcasts and other entertainment propositions). As a consequence of this, the gross profit margin is low. Although Spotify has deep troubles when it comes to profitability, investing in content remains an excellent long-term strategy. Secondly, competitors are growing rapidly. Sirius XM acquired Pandora, Square bought Tidal, SiriusXM also invested in SoundCloud, and there is still the Apple Music threat. Indicator: RSI remains at 47, which marks it as moderately bought, and the price has already declined steeply from a high of $360. Although gains have been unimpressive this year for Spotify, they were getting closer in 2019, and in the coming years, they can only improve. Spotify is also still a relatively new company, which means more investment than is otherwise required by its peers. Conclusion: Spotify is in a unique position in the music industry as it is the most direct competitor to Apple Music. Spotify is making improvements to the company in terms of original content, and although EPS remained negative, the company still has a bright future. Overall, Spotify (NYSE:SPOT) is the stock to buy.

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Spotify Investment Research

Apr 22, 2021

bullish

general Analysis

[2 min Read]

Company Overview:

Spotify is a Swedish audio streaming and media services provider, founded in 2006 by Daniel Ek. Spotify offers digital copyright-restricted recorded music and podcasts, including more than 70 million songs, from record labels and media companies. By the end of 2021, Spotify is expected to operate in a total of 178 countries. Unlike physical or download sales, which pay artists a fixed price per song or album sold, Spotify pays royalties based on the number of artist streams as a proportion of total songs streamed.

Numbers:

The revenue from 2018 to 2020 was slowly increased from $1.14 billion to $2.16 billion. Especially the quarterly YoY revenue growth was relatively large. Although Spotify's EPS has rarely turned positive and has remained negative for almost three years now, other data reveals optimistic future. The company has a fixed asset turnover of 10%, higher than most of its competitors. The price to free cash flow is 266. It has a current ratio of 0.8, but this is up from 0.7 in 2019. The company has pivoted fast over the years, and that tenacity will allow it to move higher.

Opportunities:

The number of subscribers of Spotify is the largest among its competitors like Apple Music and Amazon Music. The number even hits 155 million last year which is largely higher than 72 million of Apple Music. With expanding its lineup of original content with podcasts, music content, sports, and entertainment, the growth of the number of subscribers still has a positive trend, and as it invests more in materials such as podcasts, it will have an edge.

What's more, the music streaming industry is growing substantially these years. Revenue is expected to show an annual growth rate (CAGR 2021-2025) of 9.69%, resulting in a projected market volume of US$33,372m by 2025. User penetration will be 8.3% in 2021 and is expected to hit 11.6% by 2025. Spotify, as the service that has the largest share, will grow with the industry.

Risks:

First, Content is expensive, and Spotify invests heavily in original and exclusive content (podcasts and other entertainment propositions). As a consequence of this, the gross profit margin is low. Although Spotify has deep troubles when it comes to profitability, investing in content remains an excellent long-term strategy.

Secondly, competitors are growing rapidly. Sirius XM acquired Pandora, Square bought Tidal, SiriusXM also invested in SoundCloud, and there is still the Apple Music threat.

Indicator:

RSI remains at 47, which marks it as moderately bought, and the price has already declined steeply from a high of $360.

Although gains have been unimpressive this year for Spotify, they were getting closer in 2019, and in the coming years, they can only improve. Spotify is also still a relatively new company, which means more investment than is otherwise required by its peers.

Conclusion:

Spotify is in a unique position in the music industry as it is the most direct competitor to Apple Music. Spotify is making improvements to the company in terms of original content, and although EPS remained negative, the company still has a bright future. Overall, Spotify (NYSE:SPOT) is the stock to buy.

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SPOT

Spotify Technology S.A.

97.59

-1.41
-1.42%

Return

-63.20%
Change % Since Posting
-167.57
Change Since Posting
265.16
Price When Posted

Metrics

291.68
Target Price
5/ 10
Confidence
< 1 Week
Timeframe
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