Posted on April 5th, 2021
Spotify Technology S.A. (SPOT) has seen ups and downs over the past year as it navigated through the coronavirus pandemic. Since the beginning of 2020, Spotify has risen by approximately 82.6% as of April 2021, compared to the S&P’s gain of about 24.4%. The company was added to the WhaleWisdom Whale Index on February 18, 2021, due to Hedge Funds adding the stock to their portfolios.
Spotify offers digital recordings of music, podcasts, and news updates with international streaming services compatible with most operating systems and devices, from Microsoft Windows to Apple’s macOS and iOS and Android smartphones and tablets. Customers have access to limited free features with periodic advertisements or opt for a paid subscription to services, additional features, and commercial-free listening. Spotify pays record labels and owners of podcasts royalties based upon streaming activity. While the media services company saw advertising decline during the pandemic, it was fortunate to see a rise in paid subscribers during a time of government lockdowns and stay-at-home advisories.
Hedge Funds Are Buying
Spotify caught the attention of hedge fund managers and institutions. Looking at fourth-quarter activity by top hedge funds, the aggregate 13F shares held increased to about 38.9 million from 37.0 million, an increase of approximately 5.0%. Of the hedge funds, 27 created new positions, 45 added to an existing holding, 23 exited, and 45 reduced their stakes. With aggregate holdings increasing by about 4.2% to approximately 111.3 million from 106.8 million, institutions were also buying.
Favorable Long-Term Estimates
Analysts anticipate that revenue will continue to rise from 2021 through 2024, with year-over-year growth ranging from about 15.9% to 19.5%. These encouraging year-over-year forecasts could bring revenue to approximately $18.0 billion by 2024, up from 2021’s estimate of $11.0 billion. While earnings per share may initially fall, they are predicted to rebound between 2021 and 2025, from a loss of -$1.96 in 2021 to a profit of $1.92 in 2024.
Optimism with Varied Ratings
Doug Anmuth of J.P. Morgan Securities, Inc. has a favorable outlook for Spotify’s stock and raised its price target to $385 from $350, maintaining an Overweight rating. Spotify’s international expansion, service enhancements, and advertising opportunities factored into the higher target. Wolfe Research, LLC analyst Deepak Malthivanan gave Spotify a Peer Perform rating and a price target of $260. Then Atlantic Equities, LLP’s analyst, Hamilton Faber, conservatively downgraded the company to a Neutral rating from Overweight due to valuation, with a price target of $370.
Spotify recently announced its acquisition of Betty Labs, creator of Locker Room. This social audio application may have considerable appeal for sports fans and accelerate Spotify’s entry into the live audio space. This acquisition could certainly increase subscriber revenue, and beyond this move, Spotify is also applying machine-learning technology to cater programming to user interests.
Spotify has garnered hedge funds and analysts’ attention and made its way onto the WhaleWisdom Whale Index. As consumer demand continues to rise, Spotify strategically leverages research and technology to improve programming and expand services. Spotify’s significant growth over the past year and future potential create an opportunity for investors.