Spotify Technology S.A.

SPOT Details

Spotify Technology S.A. (NYSE: SPOT) is a leading music streaming service provider based in Sweden, with 365 million monthly active users (MAUs) and 165 million premium members as of June 30, 2021. Individuals can access the company's enormous library of music and podcasts in both online and offline modes by subscribing to its Premium Services. In addition, it also offers Ad-Supported Services for no subscription fees. These two service categories are also the focus of the company's operating segments.

MAUs & Premium Subscribers by Region (Source: Shareholder Letter, Q2FY21)

Inorganic Programs to Boost Growth: On June 17, 2021, the company acquired a 100% stake in Podz, Inc., a podcast focused technology company, for cash plus deferred consideration of EUR 45 million. Previously, on March 29, 2021, SPOT acquired Betty Labs Inc., a live audio-focused content creation company, for EUR 57 million in an all-cash transaction.

6MFY21 Results: The company reported a 19.83% rise in total revenues to EUR 4.48 billion during 6MFY21 (ended June 30, 2021) compared to EUR 3.74 billion during 6MFY20, primarily due to an increase in the number of premium subscribers and music impressions sold. SPOT recorded an increase in its net earnings to EUR 3 million during 6MFY21 vs. a net loss of EUR 355 million during 6MFY20. Free cash flow was EUR 75 million during 6MFY21 vs. EUR 6 million for 6MFY20. The Premium average revenue per user (ARPU) was EUR 4.21 and EUR 4.41 for 6MFY21 and 6MFY20, respectively.

Key Risks: As of December 31, 2020, Daniel Ek and Martin Lorentzon, the company's founders, held 33.50% and 41.90% of the combined voting power in the company, respectively, and hence, control all matters requiring shareholder approval. This concentration of ownership and voting power limits the other shareholders' ability to influence corporate matters.

Outlook: For Q3FY21, SPOT estimates its total MAUs to be in the range of 377 to 382 million, with total premium subscribers ranging between 170 and 174 million. The expected revenue range is EUR 2.31 to 2.51 billion, with a maximum operating loss of EUR 80 million.

For Q4FY21, the company's projection for total MAUs ranges between 400 to 407 million, along with total premium subscribers of 177 to 181 million. The expected revenue range is EUR 2.48 to EUR 2.68 billion, with operating loss ranging between EUR 72 to EUR 152 million.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM 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 (Source: REFINITIV)

Stock Recommendation: SPOT's share price fell 31.33% in the past six months and is currently trading at the lower-end of its 52-week range of USD 211.10 to USD 387.44. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 28.75. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 269.74. Considering the company's leading position in the global music streaming market, robust balance sheet, and attractive valuation, we recommend a "Buy" rating on the stock at the current price of USD 217.85, down 0.05% as of August 04, 2021, 2:16 PM ET.

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

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

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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