Spotify Technology S.A.

SPOT Details

Spotify Technology S.A. (NYSE: SPOT) is a Luxembourg-based music streaming service provider aiming to expand to 85 more countries and territories in Asia, Africa, the Caribbean, Europe, and Latin America by February 2021. As of September 30, 2021, the platform had 381 million monthly active users (MAUs) and 172 million Premium subscribers. The company's services are now monetized through subscriptions and advertising.

9MFY21 Results:

• Improvement in Revenues: SPOT's revenues increased 22.18% to EUR 6.98 billion during 9MFY21 (ended September 30, 2021) from EUR 5.71 billion during 9MFY20, attributable to a premium membership rise in the number of music publications sold.
• Visibility into Profitability: Its net income (attributable to parent) was EUR 5.00 million during 9MFY21, compared to a loss of EUR 456 million during 9MFY20.
• Healthy Balance Sheet: The company ended the quarter with a cash position of EUR 3.24 billion (including short-term investments) and total debt (including exchange notes and lease liabilities) of EUR 1.76 billion.
• Improvement in Cash Flows from Operation: During 9MFY21, the company recorded EUR 242 million in cash inflows from operations, compared to EUR 152 million in 9MFY20.

Key Risks:

• Voting Concentration Risk: Daniel Ek and Martin Lorentzon, the company's founders, had 33.50% and 41.90% of the total voting power in the company, respectively, as of December 31, 2020, and hence control all matters requiring shareholder approval, which constrains the ability of other shareholders to influence corporate decisions.

Outlook:

• MAUs and Premium Customer Estimates: As of Q3FY21, SPOT expects its Q4FY21 MAUs to range between 400 - 407 million, together with 177 - 181 million premium users.
• Topline and Operating Loss Estimates: It expects to clock revenue in the range of EUR 2.54 - 2.68 billion, with an operating loss of EUR 152 - 72 million.

 Valuation Methodology: EV/Sales Multiple Based Relative Valuation             

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

SPOT's share price has fallen 47.32% in the past twelve months and made a new 52 week low today. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 207.26.

Considering the correction in the stock price in the past twelve months, strong dominance in the music streaming industry, and current valuation, we recommend a "Buy" rating on the stock at the current price of USD 171.43, up 0.06% as of January 28, 2022, at 11:41 AM ET.

Three-Year Technical Price Chart (as of January 28, 2022). Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.