Spotify Technology S.A.

SPOT Details

Spotify Technology S.A. (NYSE: SPOT) is a digital music streaming service that allows users to find new releases, such as the latest singles and albums, and playlists curated by music enthusiasts and pros and millions of songs. They can also listen to their favorite music, find new ones, and create playlists. Spotify Premium and Spotify Free both feature shuffle play and ad-free listening and unlimited skips, offline listening, playing any music, and high-quality audio.

FY21 Results:

• Solid Revenues Performance: SPOT's revenues increased 22.69% to EUR 9.67 billion in FY21 (ended December 31, 2021) from EUR 7.88 billion in FY20, attributable to YoY growth of 18.57% in Premium Revenue.
• Reduction of Losses: Its net loss (attributable to parent) was EUR 34 million during FY21, reduced from EUR 581 million during FY20.
• Leveraged Balance Sheet: The company ended the quarter with a cash position of EUR 3.24 billion (including short-term investments) and total debt (including exchange notes and lease liabilities) of EUR 1.76 billion.
• Growth in Premium Subscribers: In FY21, SPOT’s premium subscribers increased to 180 million in FY21 from 155 million in FY20.
• Decline in ARPU: In FY21, the Premium average revenue per user (ARPU) was EUR 4.29 vs. EUR 4.31 in FY20.

Key Risk:

• Voting Concentration Risk: As of December 31, 2021, the company's founders, Daniel Ek and Martin Lorentzon, held 31.90% and 42.50% of the total voting power in the company, respectively, thus controlling all matters requiring shareholder approval, hence constraining ability other shareholders to influence corporate decisions.

Outlook:

Q1FY22 Outlook (Source: Press Release, Q4FY21, February 02, 2022)

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

SPOT's stock price has fallen 50.70% in the past six months and is currently leaning towards the lower end of its 52-week range of USD 118.20 to USD 305.60. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 151.40.

Considering the significant correction in the stock price, major player in the music streaming industry, growth in premium subscribers, strong topline performance, positive outlook, associated risks, and current valuation. We recommend a "Buy" rating on the stock at the closing market price of USD 122.49, down 10.86% as of April 20, 2022.

Three-Year Technical Price Chart (April 20, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.

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