International
Why do so many analysts see such good long term potential for the Spotify share price?
Spotify is a rare example of a technology company that leads a big and quickly growing market, audio streaming, but is from Europe and not the USA. But…
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Spotify is a rare example of a technology company that leads a big and quickly growing market, audio streaming, but is from Europe and not the USA. But Sweden’s Stockholm-based Spotify is just such an exception. Entertainment intelligence firm Midia calculated that as of Q2 2021, Spotify held a 31% share of the global streaming music subscription market.
Apple Music and Amazon Music had less than half Spotify’s global music subscription market share with 15% and 13% respectively. Tencent Music, the most popular service in Asia also had 13% of the global market, putting Spotify well out in front.
Source: Midia Research
Midia’s research indicates there were at total 523.9 million music streaming subscribers last year, which would mean Spotify had a little over 162.4 million paying customers. The company’s own official figures at the time claimed 165 million, suggesting the intelligence company’s figures are not far off the mark.
Despite its impressive lead over rivals, however, Spotify’s market share dropped from 33% in 2020 to 31% last year (2022 figures are yet to be released). But the company is growing revenues at a quick pace, with annual revenues for 2021 up 22% year-on-year to €9.66 billion.
However, despite, or arguably because of, its rapid growth, the company has yet to record a profit despite being established in 2006. Last year it lost €39 million, a significant improvement on the €581 million lost in 2020. Its biggest ever loss was €1.235 billion in 2017.
Source: Business of Apps
The company had 121 million users in Europe last year, 85 million in North America, 78 million in Latin America and 71 million across the rest of the world.
GrandViewResearch expects the music streaming market to continue to grow at an impressive rate until at least the end of the current decade. In the USA, CAGR is expected to average 13.3% and 14.7% globally across North America, Europe, Latin America, Asia Pacific and the Middle East and Africa.
Source:GrandViewResearch
Spotify’s strong position as the global market leader should put it in a strong position to capitalise on that market growth. The company also continues to add new content (podcasts are a particular focus) and services.
Last week Spotify’s CEO and founder Daniel Ek told investors the company is targeting annual revenues of $100 billion by 2030, which would represent almost 10 times what it made last year. A gross margin of 40% and operating margin of 20% is also being targeted.
That will be achieved, said Ek, by Spotify dominating the quickly growing market for podcasts, a move into audio books this year and a number of other new product launches.
While most analysts see Spotify’s goal as highly ambitious it is not considered impossible. The company’s share price rose 10% after the investors’ day that saw Ek announce those impressive targets but it has since given those gains up.
Like most growth stocks, especially those still to realise a profit, the Spotify share price has been hammered this year and is down 60%. It’s down a whopping 73% since its record high of $364.59 set on February 19 last year and currently trades at just shy of $100.
Is the Spotify share price cheap at its current level?
Do Spotify’s recent valuation travails represent a good long term buying opportunity for investors? 28 analysts who cover the stock surveyed by MarketWatch have an average price target of $140.95 for the Spotify stock and rate it as overweight, which means they think it is currently undervalued by markets.
If they are right, the Spotify share price has 41% upside over the next 12 months or so at its current price. Given the current economic woes gripping the global economy and very limited appetite for risk being shown by investors in the face of quickly rising inflation and interest rates, it could quite conceivably take longer than twelve months to reach that price target. But for long term investors, that wouldn’t be an obstacle. And if the company meets Ek’s goal of $100 billion in revenues and a $20 billion operating margin by 2030, the company’s valuation will undoubtedly dwarf its current levels.
But how likely is that to happen?
Why has the Spotify share price fallen so much in 2022?
Spotify’s valuation has undoubtedly been hit this year by overall market sentiment, especially towards growth stocks. Even the tech giants like Amazon, Apple, Alphabet and Facebook, which have driven much of the entire stock market’s gains in recent years, have taken a battering. They are down by 40%, 27%, 27% and 52% respectively over the year-to-date.
Netflix, Spotify’s equivalent in the television and film streaming sector, is down 72% this year.
However, there are also a handful of other factors that have put investors off. In January, the company was caught up in the Covid-19 misinformation scandal that engulfed star podcaster Joe Rogan. There are also worries over the lack of significant improvements in gross margin over the past two years, continued failure to achieve GAAP profitability and the decision to not offer forward guidance for 2022 results leading to fears they will be weak.
But despite challenging market conditions and some bumps in the road, Spotify’s long term prospects look solid to very strong. There are several factors in Spotify’s favour when it comes to its chances of reaching that $100 billion revenue target over the next seven and a half years. Even making a good fist of it but falling not too far short would be considered a major success.
Podcasts are the first. It’s a quickly growing market that Spotify is leading by investing in star names like Rogan and the Duke and Duchess of Sussex. Between 2019 and 2022, Spotify’s podcast library has grown from under 500,000 to over 4 million. More importantly, engagement is growing. In 2018, just 7% of Spotify users listened to a podcast, which had increased to 30% by this year. That’s great growth but still leaves room for more.
And of the top 10 most listened to podcasts on Spotify, 6 are exclusive to the platform, helping it create a moat to protect its market share from competitors. CFO Paul Vogel also believes gross margins from podcasting can reach 40%-50% over the long term from their current level of 30%. Overall the company’s gross margin was 28.4% over Q1 2022 for subscribers and -1.5% for freemium users that listen to ads.
Spotify also benefits from impressive customer loyalty, suggesting it has a winning product. Premium subscriber churn decreased from 5.5% in 2017 to 3.9% in 2021 and 2.4% in developed markets). 96% gross retention of paid subscribers is extremely impressive, almost unheard of, for a D2C business as large as Spotify.
Spotify’s new foray into audiobooks, challenging Audible, should also be highly profitable if successful. And with such an engaged userbase already and the company’s strong record in innovation, there seems to be no obvious reason why it would not be.
Analyst Andrew Marok from the U.S. investment bank Raymond James also believes Spotify’s stock has been oversold by being lumped in with concerns over the video streaming sector, which he sees as an over-generalisation, commenting:
“On the [music] side, the dynamic where the major labels own a significant majority of the content, and are also basically dependent on the streaming platforms such as Spotify and Apple Music to power industry growth, makes that a much more stable contingent.”
That also means audio streaming services are unlikely to get into the kind of price war currently affecting the video streaming sector.
An investment in Spotify is not without risk. Its biggest competitors, Apple, Amazon and Alphabet (via YouTube) all have more cash on their balance sheets than Spotify’s entire current market capitalisation. If they throw money at audio streaming, Spotify would face a stiff challenge to maintain its market lead. However, all three appear to have other priorities and while audio streaming is important to them, it is not their exclusive focus as it is for Spotify, which should prove an advantage.
The company has had a tough time since making its public markets debut in 2018. Its brand and user base strength are recognised but investors are sceptical of the company’s ability to significantly improve its gross margins and turn a healthy profit. But Spotify itself seems increasingly optimistic and has historically delivered on its promises to investors.
Even if it doesn’t hit its ambitious targets over the next decade, at its current valuation downside seems limited. And if it does, or gets a good way towards them, the upside could be huge.
The post Why do so many analysts see such good long term potential for the Spotify share price? first appeared on Trading and Investment News. stocks covid-19 interest rates africa europe sweden
International
Stock Market Today: Stocks turn lower as Treasury yield rise mutes earnings gains
A mixed set of big tech earnings, alongside modestly higher Treasury yields, has stocks moving lower into the start of the Wednesday session.
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International
People in Europe ate seaweed for thousands of years before it largely disappeared from their diets – we wonder why?
The decline of seaweed as part of the staple diet in Europe remains a mystery.
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How are we sure people ate seaweed?
We identified several types of molecules in the dental calculus that collectively are characteristic of seaweed. We refer to these as “biomarkers”. They include a set of chemical compounds called alkylpyrroles. When we detect these compounds together in calculus, we can be fairly sure where they came from. The same goes for other compounds characteristic of seaweed and freshwater plants. To have become embedded in dental calculus, the seaweed and freshwater plants had to have been in the mouth and most probably chewed. Biomarkers do not survive in all our samples, but where they do, they’re found consistently across many individuals we analysed from different places. This suggests seaweed was probably a routine part of the diet.Perceptions of seaweed
Today, seaweed is often seen as the scourge of beaches. It accumulates at the high-water mark where it can create a slippery and sometimes smelly barrier to the sea. But it is a wondrous world of its own. There are over 10,000 species of seaweed worldwide living in the intertidal zone (where the ocean meets the land between high and low tides) and the subtidal zone (a region below the intertidal zone that is continuously covered by water). Around 145 of these species are eaten today and in parts of Asia it is commonplace. Seaweed is edible, nutritious, sometimes medicinal, abundant and local. Although overconsumption can cause iodine toxicity, there are no poisonous intertidal species in Europe. It is also available all year round, which would have been particularly useful in the past, when food supplies were less reliable.Reconstructing ancient diets
Reconstructing ancient diets is challenging and is generally more difficult as you go back in time. This helps explain why we’ve only just realised how much seaweed was being eaten by ancient Europeans. In archaeology, evidence for ancient diets often comes from physical remains: animal bones, fish bones and the hard parts of shellfish. Evidence for plants as part of the diet before farming, however, is rare. Techniques to study molecules from archaeological remains have been around for some time. A key method is known as carbon/nitrogen (C and N) stable isotope analysis. This is widely used to reconstruct ancient human and animal diets based on the relative proportions of these elements in bone collagen. But the presence of plants has been difficult to identify, due to their low nitrogen content. Their presence is masked by an overwhelming signal for animals and fish.Hiding in plain sight
The evidence for seaweed had been present all along, but unrecognised. Our discovery provides a perfect example of how perceptions of what we regard as food influence interpretations of ancient practices. Seaweed was detected in chunks that had been chewed (and presumably spat out) at the 12,000-year-old site of Monte Verde, Chile. But when it is found at archaeological sites, it is more commonly interpreted as having been used for things other than food, such as fuel and food wrappings. In European archaeology, there is a longstanding perception that Mesolithic hunter-gatherers ate lots of seafood, but that when people started farming, they focused on food sourced from land, such as their livestock. Our findings hammer another nail into the coffin of this theory. Today, only a few traditional recipes remain, such as laverbread made from the seaweed species Porphyra umbilicalis in Wales. It’s still not clear why seaweed declined as a staple source of food in Europe after the Middle Ages.What are the implications?
Our unexpected discovery changes the way we understand past people. It also alters our perceptions of how they understood the landscape and how they exploited local resources. It suggests, not for the first time, that we vastly underestimate ancient people. They had a knowledge, particularly about the natural world, that is difficult for us to imagine today. The finding also reminds us that archaeological remains are minute windows into the past, reinforcing the care required when developing theories based on limited evidence. The consumption of plants, upon which our world depends, has been habitually left out of dietary theories from our pre-agrarian past. Rigid theories have sometimes forgotten that humans were behind these archaeological cultures – and that they were probably similar to us in their curiosity and needs. Today seaweed sits, largely unused as food, on our doorstep. Making the edible species a bigger component of our diets could even contribute to making our food supplies more sustainable.
The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.
european europeInternational
EUR/AUD bearish breakdown supported by additional China fiscal stimulus and AU inflation
Weak PMI readings from the Eurozone, an increase in China’s budget deficit ratio, and renewed inflationary pressures in Australia may trigger a persistent…
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- Weak PMI readings from the Eurozone, an increase in China’s budget deficit ratio, and renewed inflationary pressures in Australia may trigger a persistent bearish sentiment loop in EUR/AUD.
- Watch the key short-term resistance at 1.6700 for EUR/AUD.
- A break below 1.6250 key medium-term support on the EUR/AUD may trigger a multi-week bearish impulsive down move.
The Euro (EUR) tumbled overnight throughout the US session as it erased its prior gains against the US dollar recorded on Monday, 23 October; the EUR/USD shed -104 pips from yesterday’s intraday high of 1.0695 to close the US session at 1.0591, its weakest performance in the past seven sessions.
Yesterday’s resurgence of the USD dollar strength has been attributed to a robust set of October flash manufacturing and services PMI data from the US in contrast with weak readings seen in the UK and Eurozone that represented stagflation risks.
Interestingly, the Aussie dollar (AUD) has outperformed the US dollar where the AUD/USD managed to squeeze out a minor daily gain of 21 pips by the close of yesterday’s US session. The resilient movement of the AUD/USD has been impacted by positive news flow out from China, Australia’s key trading partner.
China’s national legislature has just approved a budgetary plan to raise the fiscal deficit ratio for 2023 to around 3.8% of its GDP which was above the initial 3% set in March and set to issue additional sovereign debt worth 1 trillion yuan in Q4. This latest round of additional fiscal stimulus suggests that China’s top policymakers are expanding their initial targeted measures to address the ongoing severe liquidity crunch in the domestic property market as well as to reverse the persistent weak sentiment inherent in the stock market.
In addition, the latest set of Australia’s inflation data surpassed expectations has also reinforced another layer of positive feedback loop in the Aussie dollar which in turn may put Australia’s central bank, RBA on a “hawkish guard” against cutting its policy cash rate too soon.
The less lagging monthly CPI Indicator has risen to an annualized rate of 5.6% in September, above consensus estimates of 5.4%, and surpassed August’s reading of 5.2% which has translated into a second consecutive month of uptick in inflationary growth.
In the lens of technical analysis, a potential bearish configuration setup has emerged in the EUR/AUD cross pair from a short to medium-term perspective.
Major uptrend phase of EUR/AUD is weakening
Fig 1: EUR/AUD medium-term trend as of 25 Oct 2023 (Source: TradingView, click to enlarge chart)
Even though the price actions of the EUR/AUD have been oscillating within a major ascending channel since its 25 August 2023 low of 1.4285 and traded above the key 200-day moving average so far, the momentum of this up movement is showing signs of bullish exhaustion.
Yesterday (24 October) price action ended with a daily bearish reversal “Marubozu” candlestick coupled with the daily RSI momentum indicator that retreated right at a significant parallel resistance in place since March 2023 at the 65 level which suggests a revival of medium-term bearish momentum.
EUR/AUD bears are now attacking the minor ascending support
Fig 2: EUR/AUD minor short-term trend as of 25 Oct 2023 (Source: TradingView, click to enlarge chart)
The EUR/AUD has now staged a bearish price action follow-through via the breakdown of its minor ascending support from its 29 September 2023 low after a momentum bearish breakdown that was flashed earlier yesterday (24 October) during the European session as seen from the 4-hour RSI momentum indicator.
Watch the 1.6700 key short-term pivotal resistance (also the 50-day moving average) for a further potential slide toward the intermediate supports of 1.6460 and 1.6320 in the first step.
On the other hand, a clearance above 1.6700 invalidates the bearish tone to see the next intermediate resistance coming in at 1.6890.
stimulus budget deficit us dollar euro yuan gdp stimulus european uk china
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