Company Reports

Significant margin improvement was the most encouraging component of no-moat Spotify’s excellent first-quarter results. Revenue growth accelerated and was in line with management’s guidance, which is encouraging, considering the cost-cutting program put in place in 2023 and monthly active users coming in slightly below management’s target. We’re raising our fair value estimate to $230 from $215, but it’s difficult for us to rationalize the stock’s valuation.

Spotify is the world’s leading music streaming service provider. We expect fast-growing digital streaming to become the primary distribution platform of choice in the ever-changing music industry. We believe Spotify can benefit from various network effects that will help it increase users and amass valuable intangible assets associated with user data and listening preferences. However, it faces intense competition from huge tech platforms with greater resources, and it has a largely variable cost structure that may limit future operating leverage and profitability.

Spotify is the world’s leading music streaming service provider. We expect the fast-growing digital streaming space to become the primary distribution platform of choice in the ever-changing music industry. We believe Spotify can benefit from various network effects that will help it increase users and amass valuable intangible assets associated with user data and listening preferences. However, it faces intense competition from huge tech platforms with greater resources, and it has a largely variable cost structure that may limit future operating leverage and profitability.

We are increasing our Spotify fair value estimate to $215 from $183. The firm reported impressive fourth-quarter 2023 results with double-digit top-line growth in the premium and ad-supported segments driven by higher prices, more listeners and engagement, and margin expansion. With further development and strengthening of a network effect in the subscriber and ad-supported segments, Spotify has turned the corner and likely will be profitable in 2024 and beyond, as we have been expecting. We believe the progression of the network effect, which will further lower listener and advertiser acquisition costs, plus the additional operating leverage generated by Spotify’s revenue growth will drive margins higher through the next five years more than we had previously assumed.

Sweden-based Spotify is the world’s leading music streaming service provider. We expect the fast-growing digital streaming space to become the primary distribution platform of choice in the ever-changing music industry. We believe Spotify can benefit from various network effects that will help it increase users and amass valuable intangible assets associated with user data and listening preferences. However, it faces intense competition and has a (mostly) variable cost structure that may limit future operating leverage and profitability. Thus, we do not have sufficient confidence that it will generate excess returns on capital over the next 10 years.

Spotify reported another solid quarter, demonstrating its progress toward strengthening its platform’s network effect. Spotify’s listener churn rate did not increase upon the implementation of higher prices in many markets. At the same time, its number of subscribers and overall listeners increased substantially, which also accelerated year-over-year advertising revenue growth from the previous quarter. On the bottom line, we are pleased with profitability in the quarter, which the firm believes will continue going forward, in line with our initial assumption. We think increasing demand of the higher-margin audiobooks over time likely will further expand the premium segment’s gross margin.

Sweden-based Spotify is the world’s leading music streaming service provider. We expect the fast-growing digital streaming space to become the primary distribution platform of choice in the ever-changing music industry. We believe Spotify can benefit from various network effects that will help it increase users and amass valuable intangible assets associated with user data and listening preferences. However, it faces intense competition and has a (mostly) variable cost structure that may limit future operating leverage and profitability. Thus, we do not have sufficient confidence that it will generate excess returns on capital over the next 10 years.

We are maintaining our $170 fair value estimate, no-moat rating, and Very High Morningstar Uncertainty Rating for Spotify. The stock is down 14% in intraday trading in reaction to second-quarter results and trading more than 15% below our fair value estimate. Nevertheless, we recommend new investors wait for a slightly wider margin of safety.

Sweden-based Spotify is the world’s leading music streaming service provider. We expect the fast-growing digital streaming space to become the primary distribution platform of choice in the ever-changing music industry. We believe Spotify can benefit from various network effects that will help it increase users and amass valuable intangible assets associated with user data and listening preferences. However, it faces intense competition and has a (mostly) variable cost structure that may limit future operating leverage and profitability. Thus, we do not have sufficient confidence that it will generate excess returns on capital over the next 10 years.

Swedish-based Spotify is the world’s leading music streaming service provider. We foresee the fast-growing digital streaming space as becoming the primary distribution platform of choice within the ever-changing music industry. We believe Spotify can benefit from various network effects that will help the firm increase its users and amass valuable intangible assets associated with user data and listening preferences. However, it faces intense competition and has a (mostly) variable cost structure that may limit Spotify’s future operating leverage and profitability. Thus, we do not have sufficient confidence that it will generate excess returns on capital over the next 10 years.

While Spotify's user monetization was affected mainly by macro headwinds to ad revenue, we were impressed with solid growth in both subscriber and ad-supported user counts. The improvement was especially remarkable since the firm began focusing on operating leaner, which included lower marketing spending. This could make user growth an early indicator of a network effect, but we await more consistency on that front before considering it as an economic moat source.

Spotify reported mixed fourth-quarter 2022 results with revenue coming in slightly below and operating loss a bit better than the FactSet consensus estimates. In addition, the firm’s monthly active users and premium subscribers increased more than expected, which bodes well for Spotify’s revenue in 2023 and beyond. We are pleased with the firm’s increasing focus on accommodating the healthy top-line growth with operating more efficiently to progress further toward breaking even and/or generating operating income, which we expect will take place in 2024 and beyond. While the stock is up more than 12% as the market has cheered Spotify’s impressive fourth-quarter user growth, our $170 fair value estimate represents further upside.

Swedish-based Spotify is the world’s leading music streaming service provider. We foresee the fast-growing digital streaming space as becoming the primary distribution platform of choice within the ever-changing music industry. We believe Spotify can benefit from various network effects that will help the firm increase its users and amass valuable intangible assets associated with user data and listening preferences. However, it faces intense competition and has a (mostly) variable cost structure that may limit Spotify’s future operating leverage and profitability. Thus, we do not have sufficient confidence that it will generate excess returns on capital over the next 10 years.

Swedish-based Spotify is the world’s leading music streaming service provider. We foresee the fast-growing digital streaming space as becoming the primary distribution platform of choice within the ever-changing music industry. We believe Spotify can benefit from various network effects that will help the firm increase its users and amass valuable intangible assets associated with user data and listening preferences. However, it faces intense competition and has a (mostly) variable cost structure that may limit Spotify’s future operating leverage and profitability. Thus, we do not have sufficient confidence that it will generate excess returns on capital over the next 10 years.

Spotify reported mixed third-quarter results with a top-line beat but a miss on the bottom line when compared with the FactSet consensus estimates. While the ad-supported segment displayed some weakness due mainly to the macro environment, the premium segment’s subscriber count and monetization continued to post healthy growth, although contribution from foreign exchange was material. The firm’s fourth-quarter outlook was also mixed with revenue and operating guidance ahead of and worse than current expectations, respectively. We adjusted our revenue estimates lower to account for lower ad spending during this year and part of 2023. Our new fair value estimate for Spotify, which also takes into account the stronger dollar, is now $170, down from $187. In our view, shares of no-moat Spotify remain attractive at current levels.

Swedish-based Spotify is the world’s leading music streaming service provider. We foresee the fast-growing digital streaming space as becoming the primary distribution platform of choice within the ever-changing music industry. We believe Spotify can benefit from various network effects that will help the firm increase its users and amass valuable intangible assets associated with user data and listening preferences. However, it faces intense competition and has a (mostly) variable cost structure that may limit Spotify’s future operating leverage and profitability. Thus, we do not have sufficient confidence that it will generate excess returns on capital over the next 10 years.

Spotify reported mixed second-quarter results with revenue beating the FactSet consensus estimates while missing on the bottom line. We are impressed with continuing user growth, which was not affected by the firm’s higher prices, resulting in higher user monetization. Advertising growth remained strong and the firm is not experiencing much impact from the uncertainties surrounding the macro environment. We remain confident in Spotify's ability to attract more users, increase ad loads, and bring in more advertisers especially as it increases its offerings such as audiobooks. In addition, with more user monetization, the platform may become more appealing to artists and other audio content creators. We slightly increased our revenue projections for 2022 and beyond, but lowered our fair value estimate to $187 from $195, mainly because of the stronger U.S. dollar. While the stock has jumped 13% in reaction to the report and the firm's strong third-quarter guidance, Spotify remains attractive, trading at only 0.62 times our fair value estimate.

Swedish-based Spotify is the world’s leading music streaming service provider. We foresee the fast-growing digital streaming space as becoming the primary distribution platform of choice within the ever-changing music industry. We believe Spotify can benefit from various network effects that will help the firm increase its users and amass valuable intangible assets associated with user data and listening preferences. However, it faces intense competition and has a (mostly) variable cost structure that may limit Spotify’s future operating leverage and profitability. Thus, we do not have sufficient confidence that it will generate excess returns on capital over the next 10 years.

While Spotify’s first-quarter 2022 results beat the firm’s guidance, they were mixed compared with the FactSet consensus estimates, with revenue coming in below and the bottom line beating expectations. Growth in listener count continues to demonstrate the minimal negative impact of last year’s price increase on listener growth and the material positive effect on listener monetization as it increased year over year for the fourth straight quarter. While the firm’s second-quarter guidance is slightly below the consensus estimate, it still projects for solid double-digit growth in both premium and ad-supported segments.

Swedish-based Spotify is the world’s leading music streaming service provider. We foresee the fast-growing digital streaming space as becoming the primary distribution platform of choice within the ever-changing music industry. We believe Spotify can benefit from various network effects that will help the firm increase its users and amass valuable intangible assets associated with user data and listening preferences. However, it faces intense competition and has a (mostly) variable cost structure that may limit Spotify’s future operating leverage and profitability. Thus, we do not have sufficient confidence that it will generate excess returns on capital over the next 10 years.