Summary: OVERPRICED
Score: 9/20
MOS: 1%
Share Price: $237
Sticker Price: $240
Is Spotify stock a good buy?
Spotify is an audio streaming service founded in 2006 and headquartered in Stockholm, Sweden.
Spotify has over 6,000 employees in 17 offices around the world. They are one of the world’s largest music streaming services with over 356 monthly active users and 158 million paying subscribers as of March 2021.
Here are some other comparisons between Spotify and iTunes as mentioned by musconv.com.
- Spotify and iTunes both offer offline listening.
- Spotify has better audio quality. It offers 320 kbps FLAC/lossless which is superior to iTunes which offers 256 kbps lossless.
- Spotify offers a free trial whereas iTunes does not.
- Spotify has 158 million paying subscribers whereas Apple Music has 72 million paying subscribers.
Although I’ve been a Spotify user for about 7 years, I never invested in this stock due to the limited revenue channels. Spotify generates about 91% of its revenue through premium subscriptions and 9% through advertising. This can result in slow revenue, net income, and EPS growth which results in a slow share price growth. This is especially true for businesses with strong competitors. In this circumstance, Apple and Amazon are the top players.
Spotify went public on April 3rd of 2018 at around $165 per share. With the share price being $237 today, that means the total return has been 43% over 3 years and an annualized return of 12%. For a subscription-based tech company, these returns aren’t overly impressive.
Here is what the news has to say.
This article from The Motley Fool states that the monthly active user growth over the last year has slowed down. This is due to the growth of the competition including Apple and Amazon.
This article from Yahoo Finance states that Cathie Wood, a highly bullish investor on Palantir, is also bullish on Spotify. This tells me she’s looking at Spotify as a long-term leader in the music streaming industry. Maybe she’s even considering a merger with a larger company at some point? Her interest in this stock motivates me to add this to my watchlist.
This article from Yahoo Finance states that Youtube Influencer Markiplier just launched a new podcast titled “Distractible” which shot to #1 above The Joe Rogan Experience. Around 58% of Markiplier’s audience uses Spotify. The Joe Rogan Experience is now exclusively published on Spotify as of September 1st, 2020. This shows the growing trend of influencers jumping on the Spotify platform which will help increase the usage and conversion to paid subscribers. This may relate to Cathie Wood’s bullish stance on the stock.
Here is a closer look at the financials.
Revenue (Found on the Income Statement)
2017: €4B
2018: €5.2B
2019: €6.7B
2020: €7.8B
Revenues are increasing.
Net Income (Found on the Income Statement)
2017: -€1.2B
2018: -€78M
2019: -€186M
2020: -€581M
Net income is declining rapidly. This is a bad sign.
EPS (Found on the Income Statement)
2017: -4.28
2018: -.51
2019: -1.03
2020: -3.10
EPS has remained negative and declined significantly in 2020.
Free Cash Flow (Found on the Cash Flow Statement)
2017: €133M
2018: €219M
2019: €438M
2020: €181M
Free Cash Flow declined which is not a good sign.
Total Assets (Found on the Balance Sheet)
2017: €3.1B
2018: €4.3B
2019: €5.1B
2020: €6.3B
Total Assets have increased.
Total Liabilities (Found on the Balance Sheet)
2017: €1.9B
2018: €2.2B
2019: €3B
2020: €3.5B
Total Liabilities have increased.
Total Debt (Found on the Balance Sheet)
2017: €1M
2018: €0
2019: €622M
2020: €577M
Total Debt has substantially increased in 2019 and 2020.
Total Equity (Found on the Balance Sheet)
2017: €1.1B
2018: €2B
2019: €2B
2020: €2.8B
Total Equity has increased.
With a Score of 9/20 and a MOS of 1%, this stock is too risky. I love using the Spotify platform but due to the limited revenue channels and strong competition from Apple and Amazon, this stock may remain on my watchlist.
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