Spotify Technology SA (SPOT) is the world’s most popular audio streaming subscription service provider with 320 million users across 92 countries. It has retained its position as a leading player in this industry with due to its promotional activities like free Spotify Premium for three months, price cuts, customized campaigns, and a focus on exclusive content.
SPOT’s global listening hours have surpassed pre-pandemic levels as users continue to tune into more music and podcasts. We believe SPOT’s market share should continue to rise in 2021 driven by its scalable core music product and expanding library. Its recent launch in Russia and 12 surrounding markets should accelerate its business operations significantly.
SPOT’s solid business model and its increasing monthly active users have helped it to gain 122.3% year-to-date. This impressive performance, combined with several other factors, has helped SPOT earn a “Buy” rating in our proprietary rating system.
Here’s how our proprietary POWR Ratings system evaluates SPOT:
Trade Grade: A
SPOT is currently trading above its 50-day and 200-day moving averages of $266.45 and $217.23, respectively, indicating that the stock is in an uptrend. Also, the stock has gained 38.7% over the past three months, reflecting solid short-term bullishness.
SPOT’s premium revenue for the quarter ended September 2020 grew 15% year-over-year to €1.79 billion. A significant portion of the revenue increase came from its growth in the number of its premium subscribers. Gross profit rose 10.9% from the year-ago value to €489 million, while free cash flow increased 114.6% year-over-year to €103 million over this period.
On November 10th, SPOT announced a definitive agreement to acquire the podcast technology leader, Megaphone. This acquisition will help SPOT to accelerate podcast monetization for advertisers and increase its user base.
Earlier this year, SPOT and Universal Music Group announced a new, multi-year global license agreement to develop new features that will provide value for artists and great experiences for users. This collaboration will help SPOT strengthen its position in the industry.
Buy & Hold Grade: A
In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, SPOT is well positioned. The stock is currently trading just 3.1% below its 52-week high of $342.92, which it hit on December 8th. This can be attributed to the strong monthly active user and subscriber growth, and advertising business growth.
Peer Grade: A
SPOT is currently ranked #1 out of 11 stocks in the Entertainment – Radio industry. Other popular stocks in this industry are Sirius XM Holdings, Inc. (SIRI), Townsquare Media, Inc. (TSQ) and Salem Media Group, Inc. (SALM).
SIRI, SALM, and TSQ have declined 10.4%, 22.9%, and 22.7% year-to-date, respectively. This compares to SPOT’s 122.3% gains over this period.
Industry Rank: C
The Entertainment – Radio industry is ranked #89 out of the 123 StockNews.com industries. The companies in this industry offer music streaming services, operate radio broadcast studios, and transmit music, talk shows, news, and other audio entertainment formats to the public via towers, satellite, internet, etc.
With the coronavirus pandemic wreaking havoc on the global economy, postponed live events, cancelled album releases, and temporary retailer closures sideswiped negatively impacted created ripples through local businesses and hammered radio stations. However, as global economies gradually recover, the music industry is expected to get back be on track with more artists relying on income from streaming platforms.
Overall POWR Rating: A (Strong Buy)
SPOT is rated a “Strong Buy” due to its impressive financials, short- and -long-term bullishness, and solid price momentum, as determined by the four components of our overall POWR Rating.
Bottom Line
SPOT is well positioned to soar in the upcoming months despite gaining 122.3% year-to-date. Music streaming platforms have witnessed increased virtual engagement, subscriptions, and artist activity. This will likely scale up the demand for music streaming players and play a significant role in the growth of the online music industry going forward.
Analyst sentiment, which gives a good sense of a stock’s future price movement, is positive impressive for SPOT. It has an average broker rating of 1.68, indicating favorable analyst sentiment. Out of 24 Wall Street analysts that rated the stock, 14 rated it a “Strong Buy.” The consensus EPS estimate for the current quarter ending December 2020 indicates a 45.6% improvement year-over-year. The consensus revenue estimate of $2.60 billion for the current quarter indicates a 40.4% increase from the same period last year.
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SPOT shares were trading at $344.37 per share on Thursday afternoon, up $11.92 (+3.59%). Year-to-date, SPOT has gained 130.27%, versus a 15.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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