Spotify Technology S.A.

SPOT Details

Spotify Technology S.A. (NYSE: SPOT) is a Sweden-based leading music streaming provider, with 356 million monthly active users (MAUs) and 158 million premium subscribers as of March 31, 2021. The company’s Premium Services allow individuals to have streaming access to its large catalog of music and podcasts both in online and offline modes. In addition, the company’s Ad-Supported Service has no subscription fees. The company operating segments are also organized around these two service types. As of June 11, 2021, the company’s market capitalization stood at USD 47.01 billion.

MAUs and Premium subscribers across regions (Source: Shareholder’s Letter, Q1FY21)

Acquisition of Betty Labs: On March 29, 2021, the company acquired 100% ownership in Betty Labs Inc., a content creation company focused on producing live audio experiences on hastening its access into live audio space. The company acquired betty labs for EUR 57 million in an all-cash deal.

Issuance of Exchangeable Notes: On March 02, 2021, Spotify USA Inc., a wholly-owned subsidiary of the company, issued USD 1,500 million in principle amount of 0% Exchangeable Notes due 2026. The company expects to use the net proceeds of EUR 1,223 million for general corporate purposes.

Q1FY21 Results: The company reported a 16.17% rise in total revenue to EUR 2,147 million in Q1FY21 (ending March 31, 2021) compared to EUR 1,848 million in Q1FY20 (ending March 31, 2020), primarily due to an increase in the number of premium subscribers. In addition, the company recorded a 22x increase in its net earnings to EUR 23 million in Q1FY21 compared to EUR 1 million in Q1FY20. Free-cash flow was EUR 41 million during Q1FY21 compared to a negative free cash flow of EUR 21 million during Q1FY20. The premium average revenue per user (ARPU) was EUR 4.12 and EUR 4.42 during Q1FY21 and Q1FY20, respectively.

Key Metrics (Source: Shareholder’s Letter, Q1FY21)

Key Risks: The company’s founders, i.e., Daniel Ek and Martin Lorentzon, represent 33.50% and 41.90% of the combined voting power (as of December 31, 2020) on the company’s outstanding voting securities and control all matters requiring shareholder’s approval. This concentration of ownership and voting power can limit the company’s ability to influence corporate matters.

Outlook: For Q2FY21, the company estimates its total MAUs to be in the range of 366 to 373 million, along with total premium subscribers between 162 to 166 million. Total revenue is expected to be in the range of EUR 2.16 billion to EUR 2.36 billion with operating loss between EUR 54 million to EUR 134 million.

For the full year FY21, the company is projecting its total MAUs between 402 to 422 million, along with total premium subscribers to be in the range of 172 to 184 million. Total revenue is expected to be in the range of EUR 9.11 billion to EUR 9.51 billion with operating loss between EUR 150 million to EUR 250 million.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SPOT Daily Technical Chart

Stock Recommendation: SPOT’s share price has decreased by 28.59% in the past six months and is currently trading in the mid band of its 52-week range of USD 177.21 to USD 387.44. The stock is currently trading below its 200 DMA levels. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 281.63. Considering the company’s leading position in the global music streaming market, robust balance sheet, and current valuation, we recommend a “Buy” rating on the stock at the closing price of USD 243.66, down by 1.43% as of June 11, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.