It's time to break down a name that has been singing the blues lately. Here is the breakdown on $SPOT, better known as Spotify.
Current Price: $252.685
52/Wk High: $299.67
52/Wk Low: $109.18
Market Cap: $47.0 billion
Read below for the breakdown!
Spotify is a popular music and podcast streaming platform in which users can listen to the latest music and podcasts, all the while creating personalized playlists and much more.
Throughout the past several years Spotify has seen its popularity grow and most recently the company expanded its offerings into countries such as Russia most recently.
Due to the pandemic, the digital boom has assisted in Spotify’s growth, but by no means has the company relied on it.
Taking a look at Spotify’s MAU distribution as of Q3 it was quite diversified.
North America: 25% of MAUs
Europe: 34% of MAUs
Latin America: 22% of MAUs
Rest of World: 19% of MAUs
Digging into the most recent quarter, Spotify reported a miss with an EPS of EUR -0.58 versus the analyst's consensus estimate of EUR -0.56.
On the bright side, Spotify saw solid growth across revenues and users. Spotify reported 14% year-over-year revenue growth with revenues of EUR 1.975 billion. Furthermore, total MAUs grew significantly, coming in at 320 million MAUs, representing 29% year-over-year growth.
Spotify also saw 27% growth in premium subscribers with the total premium subscriber level now totaling 144 million subscribers.
On a final Q3 note, Spotify’s premium subscriber churn rate dropped to a low 4% and gross margin landed at 24.8% at the end of Q3.
Shifting into Q4 guidance, Spotify management is quite bullish. Spotify expects total MAUs for the quarter to land within a range of 340 million to 345 million MAUs.
Management also expects revenues within a range of EUR 2.00 billion to EUR 2.20 billion and total premium subscribers to total 150 million to 154 million.
Gross margin is also expected to improve and land within a range of 24.2% to 26.2%. On a negative note operating profit/loss is expected to land within a range of EUR -112 million to EUR -32 million.
The balance sheet on the other hand isn’t bad and shows signs of strength.
Total Debt: EUR 592 million
Total Liabilities: EUR 3.298 billion
Total Assets: EUR 5.764 billion
Cash & Short Term Inv: EUR 1.901 billion
On the valuation side of things, Spotify is trading at a premium but is not terribly priced in my opinion.
Price to Sales: 5.43x
Price to Book: 16.65x
Absorbing the numbers, the analysts are quite bullish on Spotify. Currently, the mean price target sits at $278.07/share, representing a 10.32% gain.
Spotify's high price target is also strong at $357.00/share, representing a 41.64% gain, all the while the low price target is $181.00/share, representing a -28.19% loss.
When it comes to institutional ownership the numbers are solid. Currently, 59.01% of Spotify is owned by institutions. Top holders include Baillie Gifford & Co., Tencent Holdings, and Morgan Stanley Investment Management.
Technically, Spotify could be a flashing opportunity given the past few months of action. According to the six-month charts, the MACD is within a tight downward momentum range of -0.0761 to -1.388.
The six-month charts are also indicating an RSI of 47.91 and CCI of -47.0272, both of which are solid levels to start a small position. It is also important to note that Spotify has formed a solid support around $225/share all the while creating a resistance around $295/share.
In short, I like Spotify long term given the growth potential of music and podcast streaming. On the other hand, competitors such as Apple Music do present a sizable risk and the short to mid-term outlook in my opinion is volatile.
EAT - SLEEP - PROFIT
Disclaimer: This is not direct financial advice, simply an opinion based on independent research.