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Company Overview

Zacks Rank #1 (Strong Buy) stock Spotify ((SPOT - Free Report) ) is a digital music streaming service that provides users with access to millions of songs, podcasts, and other audio content. Users can listen to music for free with advertisements or subscribe to premium plans for an ad-free experience and additional features like offline listening and higher audio quality. Spotify utilizes algorithms to personalize recommendations based on user preferences, creating curated playlists and suggesting new music.
 

Capitalizing on the Migration from “Old Media” to “New Media”

The cable TV market is speaking, and investors should listen. Last year, the prominent cable news networks saw year-over-year viewership declines except for MSNBC (which squeaked out a 2% increase). Fox News, which has dominated the rankings for eight years running, saw prime-time viewership plummet 20% after the departure of Tucker Carlson, its controversial but wildly popular prime-time host.

Analyze the trajectory of cable news numbers over the past few years, and you will find that more and more news watchers (especially) in the younger generation prefer independent media. Independent media allows a host to have more free will and free speech, be less beholden to advertisers, and consume media on-demand.
 

“Joe Rogan Experience” Helps Deliver Record Numbers

Years ago, Spotify made a bold bet by signing popular podcast Joe Rogan to a contract worth upwards of $100 million (SPOT just resigned Rogan but the exact number is unclear). While it’s been widely known that Joe Rogan has the most popular podcast worldwide, the scope was not understood until recently. “The Joe Rogan Experience” is nearly three times bigger than the most popular podcast, reaches over 14.5 million listeners, and has 10 million more followers than any other podcast.

In the fourth quarter, Rogan and other popular podcasts on the platform helped to deliver record numbers. Premium subscribers grew 15% year-over-year to 236 million, 1 million above guidance. Meanwhile, monthly active users (MAUs) grew 23% year-over-year to 602 million, 1 million above guidance. The charts in each segment provided in the Spotify investor relations section show strong and steady growth across a multi-year period.

Image Source: Spotify Investor Relations
 

Robust Forward Estimates

Spotify has lost money every year as a public company. However, in 2024, analysts expect the company to turn the profit spigot on. For the full-year 2024, Zacks Consensus Estimates suggest that earnings will grow at a healthy 219.66%.

Image Source: Zacks Investment Research

Forward estimates are a powerful tool at investors’ disposal. Institutional investors are the professionals who manage the trillions of dollars invested in mutual funds, pension funds, investment banks, etc. Most institutional investors attended prestigious business schools where they were taught a number of classical financial models, many of which were designed to calculate the fair value of a company and of its shares. Almost without exception, these valuation models focus on earnings and earnings estimates. In other words, raising the earnings estimates used in the model will create a higher fair value for the company and its stock price. Remember, institutional investors are the primary driver of winning stocks.
 

Strength Begets Strength

Relative strength is one of the simplest but most effective indicators on Wall Street. Over the past year, SPOT’s technical picture has begun to mirror its fundamental picture. SPOT shares have gained a juicy 105%, while the S&P 500 lags behind at 33.4%.

Image Source: Zacks Investment Research
 

Bottom Line

Spotify’s embrace of new media has propelled it to the forefront of the digital audio landscape, revolutionizing how we consume content. By leveraging technology to offer personalized experiences and tapping into the growing demand for streaming services, Spotify has cemented its position as a leading player in the industry.

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