Spotify Stock Forecast & Analysis: Is SPOT a Buy?

Written by Sean GraytokUpdated: 8th May 2022
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This Spotify stock forecast & analysis will help you determine if it belongs in your portfolio. 

Spotify Stock Forecast: Background

Spotify is the largest music streaming service in the world by subscriber count. It was founded in 2006 by Daniel Ek.

The company revolutionized the music industry by paying royalties based on the number of artist streams as a proportion of total songs streamed instead of fixed download or physical sales.

Spotify has received criticism from artists over this “market share” compensation model. However, the value proposition to consumers has overshadowed these complaints.

Spotify Stock Forecast: Investment Potential

#1. Strong Subscriber Base & MAUs

Premium subscribers, meaning those that pay Spotify’s monthly subscription fee, and monthly active users (MAUs) are Spotify’s most important metrics.

These numbers capture the company’s efforts to increase content engagement and attract creators. So, how has Spotify been doing?

Spotify’s Premium Subscriber base grew 21% year-over-year to 158 million, compared to 72 million from Apple Music and 55 million from Amazon Music.

Spotify also announced that its total MAUs grew to 356 million in the quarter, up 24% year-over-year.

To be fair, we’re comparing apples to oranges here (no pun intended). The launch of the Apple One bundle means many Apple Music users will switch subscription plans, which muddies the data to some degree.

In addition, Amazon Music is subsidized by AWS and Prime, allowing it to undercut Spotify and offer more attractive pricing.

Interpreting these numbers is difficult because it’s not enough for them just to increase quarter-to-quarter, that’s a non-starter.

Wall Street is more concerned with the rate at which they’re growing.

#2. The Podcast Opportunity (and Eventual Reveal)

Spotify has gone all-in on podcasts. From signing exclusive talent to acquiring pick-and-shovel companies, Spotify is striving to be the podcast platform of the future.

Ad sales increased 19% last year for U.S. podcasters to $842 million, and the industry expects that number to exceed $1 billion in annual ad revenue for the first time ever in 2021.

Apple created the term “podcast” in 2005, but the medium didn’t really catch on until 2015. So, a $1 billion market opportunity is respectable, but this industry is still in its infancy.

We expect this market to expand exponentially in the coming years – and so does Spotify. Let’s look at its recent acquisitions:

  • Megaphone ($235 million) – podcast advertising and publishing company
  • Gimlet Media ($200 million) – digital media and narrative podcast company
  • Anchor ($150 million) – introductory operating system for podcasting
  • The Ringer Podcast Network ($200 million) – sports and pop culture content company
  • The Joe Rogan Experience ($100 million) – podcast hosted by comedian Joe Rogan

Spotify has also signed several A-listers to exclusive deals, like Michelle Obama, Brene Brown, and Kim Kardashian.

Spotify does not currently separate its music and podcast-related revenue.

However, we believe the eventual “reveal” of podcasting revenue could send the stock soaring, similar to that of Amazon (AMZN) and Google (GOOG) after revealing AWS and YouTube revenues, respectively.

#3. Streaming Potential in New Markets

Spotify’s foray into podcasting proves it has the distribution channels to enter new markets. It could just be getting started.

Some speculators think Spotify could eventually become a challenger to Netflix if it continues its aggressive growth campaign.

Buying The Joe Rogan Experience forced Spotify to add a video component to its platform. This could serve as the gateway into new video-centric markets.

For example, the most popular podcast genre for advertisers is news, accounting for 22% of the market share.

What’s stopping Spotify from acquiring political commentators and exclusively hosting its shows on its platform?

The possibilities are endless when it comes to content streaming.

Spotify Stock Forecast: The Economic Moat

A company’s moat typically refers to its ability to fend off challengers and protect its market share. We believe the following describes Spotify’s moat:

Distribution + Winner Take Most Market

Companies that pioneer new markets enjoy many advantages. Spotify benefits from several first-mover advantages in music streaming that other platforms cannot easily replicate.

For example, artists don’t really have a choice when it comes to distribution. They either accept Spotify’s compensation plan or miss out on hundreds of millions of listeners.

Spotify created the first music streaming service with a legal, quality product. The market voted, and Spotify won. Now, it controls the railways and can get new products in front of hundreds of millions.

Fortunately for Spotify, it operates in a winner-take-most market and is firmly rooted at the top.

Spotify Stock Analysis: Q4 Earnings

Spotify reported Q4’21 earnings on February 2, 2022. Shares fell as much as 18% following the report. Here are the numbers:

  • Loss per share: €0.21 vs €0.43 expected
  • Revenue: €2.69 billion vs €2.65 billion expected

Monthly active users grew to 406 million, up from 381 million, and paid subscribers grew 16% year-over-year to 180 million. 

Spotify missed on earnings, but beat on revenue. So why the severe sell-off?

You could point to underwhelming user growth projections for the upcoming quarter, or perhaps recent controversy regarding The Joe Rogan experience, but neither of those warrant such a brutal sell-off in our estimation.

Facebook also reported earnings on this day and experienced a 20% decline in its share price, which sparked a broader tech sell-off in some of the growth names — a category that includes Spotify. 

Spotify Stock Competition

In the attention economy, any company that pulls users off the Spotify platform is a competitor. Let’s look at Spotify’s top challengers:

  • Apple Music and Podcasts (AAPL)
  • Amazon Music (AMZN)
  • YouTube and YouTube Music (GOOG)
  • Netflix (NFLX)
  • SoundCloud
  • Pandora
  • TIDAL
  • Stitcher
  • Audible

The company will take on a new batch of competitors if it begins to diversify its streaming capabilities, such as Netflix (NFLX), Disney+ (DIS), Hulu, and HBO Max (T).

Spotify Stock Forecast: The Bear Cases

#1. Spotify vs. Apple

Spotify has been critical of Apple for charging high commission fees on rivals in the App Store, claiming that Apple demonstrates anticompetitive behavior that hurts consumers.

Apple collects a percentage on all in-app purchases made in the App Store. Talk about owning the distribution channels.

Spotify filed a formal complaint to the EU in 2019 regarding Apple’s licensing agreements and mandatory 30% commission fees for developers.

On April 30, 2021, European Commission said that “Apple has a monopoly” and has “abused its dominant position” in the distribution of music streaming apps.

Apple responded in a statement, “Spotify has become the largest music subscription service in the world, and we’re proud of the role we played in that. Once again, they want all the benefits of the App Store but don’t think they should have to pay anything for that.”

#2. Amazon & Google

In addition to Apple, Spotify faces competition from two other trillion-dollar FAAMG companies in Amazon and Google.

Amazon has added full podcast functionality to Amazon Music in an effort to keep pace with Spotify’s podcast push. It also acquired podcast network Wondery in a deal reportedly worth more than $300 million.

Google is also coming for Spotify. Its YouTube platform has a monopoly on the video component of podcasts.

Additionally, YouTube Music has amassed a paid subscriber base of +30 million.

Where there are ears, there are advertising dollars. Who expected two of the three largest digital advertising companies to remain on the podcasting sidelines?

Spotify must continue to innovate, or it will join the long list of companies to get eaten by Big Tech.

#3. Spotify Shares Content with Competitors

Another concern for Spotify is that people can listen to Drake on Apple Music, Amazon Music, and YouTube Music.

While it may be able to sign exclusive podcast deals, its main offering (music) is available on other platforms.

This allows Big Tech to offer the same product at better prices, possibly causing Spotify listeners to switch platforms.

Spotify Stock Allocation in Your Portfolio

For some investors with certain time horizons and risk thresholds, Spotify stock might be a great buy. For others, maybe not.

It’s important to consider your own investing goals prior to investing in any stock. Regardless, the following questions might help you determine the right amount of Spotify stock to buy if any:

  • Will the App Store dramatically limit Spotify’s revenue potential?
  • Can Spotify capitalize on the podcast boom and sign exclusive talent?
  • Is the S&P 500 or QQQ a better investment?
  • Can Spotify succeed if Apple Music continues to grow at this rate?
  • Is Spotify acquiring the optimal mix of podcast platforms, developers, and talent?
  • Will Spotify add more streaming genres and challenge Netflix in some way?
  • If Amazon Music and YouTube Music can have the same entertainment on their platforms while changing less, how can Spotify defend its market share?
  • Is there more upside in other high-growth names?
  • Will rising interest rates severely impact Spotify’s valuation?

Playing devil’s advocate on an investment idea can be an effective way to gauge your conviction.

FAQs About Shopify Stock 

Is Spotify stock a buy?

It might be a good time to buy Spotify stock if you’re a long-term believer in the company. Spotify (SPOT) stock plummeted following its most recent earnings call. Investors were not pleased with its subscriber growth rate for the quarter.

Is Spotify stock overvalued?

Some say that Spotify’s (SPOT) stock is overvalued because of its eye-watering price-to-sales and price-to-earnings ratio. Investors buying Spotify stock today believe that it will eventually grow into its valuation.

Why is Spotify stock going down?

Spotify (SPOT) stock is going down because its subscriber growth slowed from the previous quarter. CEO Daniel Ek said that a “slowing” rate can be attributed to having such a strong 2020.

Is it good to buy Spotify stock?

Spotify stock is off 49% from its all-time high stock price of $364. Long-term believers in Spotify (SPOT) are buying the dip and doubling down on their conviction.

Bottom Line: Spotify Stock Forecast

Spotify has the reach to aggressively pivot into new markets, made evident in the company’s podcast strategy.

Spotify stock can expect even greener pastures if it can identify and capitalize on the “next big thing” in content consumption.

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This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we researched Spotify (SPOT) stock.

Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and leading expert in investing and financial management. His work has been cited in leading industry publications, such as InvestorPlace and Business Insider. Sean is interested in the people and technologies that are improving the world.