Spotify stock analysis
Join 9000+ investors: https://www.overlookedalpha.com
Spotify stock dropped 14% yesterday after it reported a quarterly loss of €300 million. This was more than double the 125 million loss it made one year ago. At the latest share price, the company now has a market cap of $29 billion. It's got 4.9 billion of cash and investments and 1.3 billion of debt. So the enterprise value is roughly 25 billion.
Taking into account the latest quarter, Spotify has made a net loss of almost €1 billion over the last 12 months. 410 million of that is coming from stock based compensation. Free cash flow has also dropped substantially from 280 million in 2021 to just 28 million over the last 12 months. There are two key reasons for this poor performance.
#stockstowatch #stockstobuy #spotifystock
Join 9000+ investors: https://www.overlookedalpha.com
Spotify stock dropped 14% yesterday after it reported a quarterly loss of €300 million. This was more than double the 125 million loss it made one year ago. At the latest share price, the company now has a market cap of $29 billion. It's got 4.9 billion of cash and investments and 1.3 billion of debt. So the enterprise value is roughly 25 billion.
Taking into account the latest quarter, Spotify has made a net loss of almost €1 billion over the last 12 months. 410 million of that is coming from stock based compensation. Free cash flow has also dropped substantially from 280 million in 2021 to just 28 million over the last 12 months. There are two key reasons for this poor performance.
#stockstowatch #stockstobuy #spotifystock
Category
🗞
NewsTranscript
00:00 Spotify's stock dropped 14% yesterday after it reported a quarterly loss of 300 million
00:07 euros. This was more than double the 125 million loss it made one year ago. At the latest share
00:13 price the company now has a market cap of 29 billion dollars. It's got 4.9 billion
00:19 of cash in investments and 1.3 billion of debt so the enterprise value is roughly 25
00:25 billion.
00:26 Taking into account the latest quarter, Spotify has made a net loss of almost 1 billion euros
00:31 over the last 12 months. 410 million of that is coming from stock based compensation. Free
00:37 cash flow has also dropped substantially from 280 million in 2021 to just 28 million over
00:43 the last 12 months.
00:45 There are two key reasons for this poor performance. First, Spotify pays out a lot of money to
00:50 music labels. This means the company has low gross margins of only 25% and its gross margins
00:56 have also declined by roughly 1% since 2018.
01:00 Second, Spotify has continued to spend money developing its platform. It's been investing
01:06 heavily in podcasts, advertising and AI, famously paying Joe Rogan an alleged 200 million dollars.
01:13 The foray into podcasts has been a mixed bag with the company axing a number of them over
01:18 the last year.
01:20 Investing also hasn't been going that well. Ad revenue has been increasing but the profit
01:24 contribution shown in green is barely visible on this quarterly chart.
01:29 The good news however is that Spotify is still seeing significant growth. Total monthly users
01:34 increased 27% year over year to 551 million with a 17% increase in premium subscribers.
01:43 As a result, total revenue increased 11% year over year taking the total to 12.4 billion
01:49 over the last 12 months.
01:51 And this continues an excellent record of consistent revenue growth.
01:55 Investors don't like Spotify's gross margins but the company does have plans to fix this.
02:00 Last week it announced a $1 price increase taking the monthly subscription price in the
02:04 US to $11 a month.
02:06 Audiobooks could also be a lucrative avenue for Spotify with CEO Daniel Ek saying that
02:12 they could become very very big.
02:15 Lets assume Spotify can get to $20 billion in revenues by 2028 and get its net income
02:20 margin to 10%. That would see the company producing $2 billion in earnings in 5 years
02:25 time and a 25 times multiple would put the company at a valuation of $50 billion.
02:31 That works out to an investment return of almost 14% a year.
02:35 The thing is Spotify could do better than that. $11 a month for unlimited music is still
02:40 incredibly good value and that gives the company plenty of room to raise prices even further.
02:46 All that said, the music industry is undergoing rapid changes right now with the development
02:51 of AI.
02:52 It's difficult to know how that's going to play out and the biggest risk to Spotify
02:56 could well be TikTok which recently announced its own platform TikTok Music.
03:01 Overall $25 billion for the world's premier music platform doesn't seem unreasonable.
03:06 The threat from TikTok needs to be watched closely but right now I give Spotify a bullish
03:11 rating but these are my personal opinions not financial advice and I do hold shares
03:16 in the company. For more detailed investing ideas make sure to visit our website overlookedalpha.com