Maybe I am missing something with Spotify (SPOT), or perhaps the number crunchers on Wall Street are — both are unclear.
After being a long-time devotee of Pandora (from before it was owned by SiriusXM), I recently decided to delete the app from my iPhone. I simply grew tired of the Pandora streams across my 80s rock and BPM channels continuing to feed me the same tired, dusty old songs. With a new, near daily Peloton program in the cards, I definitely don’t need to hear the same tracks while trying to make it through the last five minutes of a grueling bootcamp class on the app.
Pandora, based on my experience, was becoming the anti-personalized streaming music service in the age of personalization.
I resisted the switch to Spotify out of my own blind loyalty. Friends — such as Yahoo Finance anchor Myles Udland — told me months ago Pandora sucks and that Spotify rules. I should have listened earlier because the Spotify experience is truly best in class. I’m absolutely enjoying the ease of the user interface, how effortlessly songs start after one ends and of course how the streams are classified into moods and personal interests. I haven’t even gotten around to testing out the podcasts (I need to because the company is spending large sums of money to expand podcasts) or premium service (another focus point).
But no doubt in my mind, each option is probably as great as the free service I am currently using.
And that brings me to this question: if this is in fact the de facto streaming music platform of choice for our generation (sorry Apple Music and Amazon Music, just speaking truth here) why the hell does Wall Street really hate Spotify’s stock? When I say hate, it actually may err on the side of being an understatement.
Here are several helpful stats on Spotify yanked from a new Credit Suisse report put out by analyst Brian Russo:
At 5.5% of the float, Spotify’s short interest — in effect bets against Spotify’s stock going up — is at a historic high.
Spotify’s trailing 12-month price-to-sales ratio at 2.4 times has fallen to all-time lows.
Spotify’s forward price-to-sales ratio of 2.3 times is the second lowest in a comparable next-gen media peer group of Amazon (2.7 times); Apple (3.7 times); Alphabet (4.2 times); Netflix (4.6 times); Facebook (5.3 times); Roku (6.2 times); Twitter (8.3 times); Snap (8.7 times). Tencent Music has the lowest multiple at 0.9 times.
In total, Spotify’s stock is down 1% this year versus the 17% gain for the tech-focused Nasdaq Composite. The stock’s selloff has accelerated since the summer — it’s down by about 23% in the past three months.
To analyst Russo, Spotify’s stock is going through a warranted valuation re-adjustment amid rising competition in the streaming music space, increasing content costs, a potentially too aggressive push into original content via podcast platform acquisitions and a soft patch in premium subscription growth.
“Spotify shares have at times been volatile around competition headlines and we expect this will continue to be the case for some time. We find investors most concerned about Apple as a competitor, and less so for Amazon and Google,” writes Russo.
Russo thinks Wall Street is pricing in a third quarter subscriber miss when earnings are delivered October 28.
Nevertheless, hat tip to me for finally getting on Spotify — I am only five years behind.