Spotify Technology S.A.

SPOT Details

Spotify Technology S.A. (NYSE: SPOT) is a music streaming service provider based in Luxembourg. As of December 31, 2021, its platform had 406 million monthly active users (MAUs) and 180 million Premium Subscribers across 184 countries and territories. Subscriptions and advertising are now used to monetize the service.

FY21 Results:

• Growth in Revenues: SPOT's income increased by 22.69% to EUR 9.67 billion in FY21 (ended December 31, 2021) from EUR 7.88 billion in FY20, owing to a 16% rise in Premium Subscribers and increased music impressions sold.
• Decline in Losses: The company reported a significant decrease in net losses to EUR 34 million in FY21 from EUR 581 million in FY20.
• Healthy Balance Sheet: As of December 31, 2021, the company has EUR 3.50 billion in cash and cash equivalents (including short-term investments) and EUR 1.78 billion in total debt (including exchange notes and lease liabilities).
• Increase in MAUs: Monthly Active Users (MAUs) on the Spotify platforms increased to 406 million as of December 31, 2021, up from 345 million as of December 31, 2020.
• Growth in Premium Subscribers: SPOT reported an increase in premium subscribers to 180 million at the end of December 31, 2021, up from 155 million as of December 31, 2020.

Key Risks:

• Voting Concentration Risk: Daniel Ek and Martin Lorentzon, the company's founders, controlled 31.90% and 42.50% of the total voting power of all of the company's outstanding voting securities, respectively, as of December 31, 2021, and hence control all items requiring shareholder approval. Other shareholders' capacity to influence corporate operations is limited due to ownership and voting power concentration.

Outlook:

• MAUs and Premium Customer Estimates: Total MAUs for Q1FY22 is expected to reach over 418 million, with 182 million premium users, according to company predictions as of February 02, 2022.
• Topline and Gross Margins Estimates: Revenues are forecast to range between EUR 2.60 billion and EUR 2.80 billion, with a gross margin of around 25.0%.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 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 45.68% in the past nine months and is currently leaning towards a lower band of its 52-week range of USD 118.20 to USD 305.60. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 166.00. The company recently acquired two podcasting acquisitions, Podsights and Chartable, which are tools that will allow it to better measure podcasting in general and better analysis to help podcasters know how to attract and retain advertisers. As a result, we believe that usage will continue to rise.

Considering the bearish trend of the stock in the past nine months, market dominance in the music streaming industry, strong fundaments, growth in revenue metrics, and current valuation, we recommend a "Buy" rating on the stock at the current price of USD 134.24, up 0.49% as of March 17, 2022, at 11:13 AM ET.

Three-Year Technical Price Chart (as of March 17, 2022, at 11:13 AM ET). Source: REFINITIV, 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 unfavourable 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.