• Reinhardt Coetzee


The Stockholm-based company hit the public market in 2018 and took off, with its stock gaining 29% in the first month alone. Spotify's growth story still continues. Its stock has been rising higher and higher in 2020, from below $120 in March to over $270 in October.

As of October 23, 2020, Spotify’s stock is trading at around $271. This is a small drop from its all-time high of $299 but a major surge from a 52-week low of $109. Spotify's rally since March was driven by a wide range of factors, including an increase in demand from millions of consumers in lockdown, its resilience, a variety of services, and a strong YOY increase in premium subscribers. All these factors contributed to its stock price growth and positive results in the second quarter.

◾Spotify Posted Positive Results in the Latest Q2 Earnings Report

On July 29, 2020, Spotify reported its Q2 financial results for the quarter ended June 30, and it did not disappoint. The media-streaming specialist generated revenues of 1.89bn in Q2, up 13% year-on-year. But, the company is still operating at a loss due to huge investments to attract first-time subscribers. The strategy is working, evidenced by a steady increase in the number of subscribers for several quarters consecutively. In Q2, Spotify's subscribers reached 138 million from 130 million in Q1, leading to a 17% year-over-year increase in premium subscription income. The number of subscribers increased by 27% year-over-year, which contributed to the growth of its premium-subscription revenue.

Spotify’s monthly active users (MAUs) also increased by 13 million from 286 million in Q1 to 299 million in Q2. Even though the company’s ad-supported income plunged 21% year-over-year in Q2 due to market uncertainties catalyzed by the crisis, this segment only represents 7% of its revenue. The streaming veteran is expected to release its Q3 financial report later today for the quarter ended September 30. It expects total MAUs to increase to 312-317 million and reach between 140 and 144 million premium subscribers. Total revenue for Q3 2020 is projected to increase to over $2 billion. Spotify's steady growth in revenue, subscribers, and monthly active users consecutively make the company a good buy.

◾Why Spotify is still a good long-term buy

Spotify operates across the world and is expanding in many regions. In Q2 2020, the company added around 3.1 million new subscribers in Europe, compared to 2.3 million in North America, 1.7 million in Latin America, and 900k in the rest of the world. It also has a high overall conversion rate at 46.2% of listeners who become subscribers. Turning free-riders into paying customers is the key to success regardless of the industry. And Spotify has mastered the art of conversion, which will contribute to its growth for many years to come.

Spotify’s innovation mindset sets it apart from the competition. It invests in experimentation heavily, which has enabled the company to nurture new concepts and stay ahead of the competition. This is backed by Spotify’s previous experimentation that led to its successful expansion beyond music into podcasts, which the company sees as a big growth area in the future.

Spotify is unrivaled when it comes to user experience because it focuses primarily on music-streaming. Its singular focus is a major sustainable advantage over competitors like Apple, who is always distracted by other ventures. Spotify has also invested in acquisitions of renowned podcasts like The Ringer and The Joe Rogan Experience, which will contribute to its growth. It is also expanding into several high-potential countries and continues to improve the monetization of its platform with new ad features to pull in more income.

◾Bottom Line

As the leader in music-streaming, Spotify has huge potential for growth ahead since music-streaming is still relatively new. Its focus on music and podcasts coupled with balanced global operations and planned expansions makes it a solid long-term holding in a portfolio.

𝘋𝘪𝘴𝘤𝘭𝘰𝘴𝘶𝘳𝘦: 𝘐 𝘰𝘸𝘯 Spotify 𝘪𝘯 𝘮𝘺 𝘱𝘰𝘳𝘵𝘧𝘰𝘭𝘪𝘰 𝘢𝘯𝘥 𝘵𝘩𝘪𝘴 𝘪𝘴 𝘮𝘺 𝘱𝘦𝘳𝘴𝘰𝘯𝘢𝘭 𝘷𝘪𝘦𝘸 𝘢𝘯𝘥 𝘢𝘯𝘢𝘭𝘺𝘴𝘪𝘴 𝘰𝘧 𝘵𝘩𝘦 𝘤𝘰𝘮𝘱𝘢𝘯𝘺 𝘢𝘯𝘥 𝘴𝘩𝘰𝘶𝘭𝘥 𝘯𝘰𝘵 𝘣𝘦 𝘵𝘢𝘬𝘦𝘯 𝘢𝘴 𝘪𝘯𝘷𝘦𝘴𝘵𝘮𝘦𝘯𝘵 𝘢𝘥𝘷𝘪𝘤𝘦.

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Stock returns for portfolio and individual  trade returns correct as of 2022/02/03

© 2022 by reinhardtcoetzee.com

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