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My views about Spotify $SPOT.
Spotify is the original music streaming company, that has over 320 million users worldwide. The company has been extremely successful but has problems & is undergoing a change of business model. I'll try to cover it here.
1/n
Spotify is the original music streaming company, that has over 320 million users worldwide. The company has been extremely successful but has problems & is undergoing a change of business model. I'll try to cover it here.
1/n
The biggest problem is noticeable if you look at financials. The gross margins are simply too low. This is mostly because they have to pay record labels ~70% revenue for rights.
The other issue is that they have many competitors - Apple Music, Amazon Music, YT Music etc.
2/n
The other issue is that they have many competitors - Apple Music, Amazon Music, YT Music etc.
2/n
To fix this they are:
1. Trying to become audio company from music streaming - podcasts, walking tours etc. This involves building up original content like Netflix did. This attracts users, which then attract more content creators, thus completing the loop.
3/n
1. Trying to become audio company from music streaming - podcasts, walking tours etc. This involves building up original content like Netflix did. This attracts users, which then attract more content creators, thus completing the loop.
3/n
2. Reducing barriers between creators and viewers. You can directly publish music or other audio to Spotify, without needing record labels. You can also advertise directly on Spotify. This would drive further value capture.
4/n
4/n
What the company has going for it is extreme focus & great CEO. I watched this video of Daniel Ek & was impressed. Focus is also apparent if you try out Spotify & their competitors. UI/UX makes much more sense.
5/n
5/n
Let's talk financials. Lots of losses & no profitability in sight. Reason to buy this is if you believe they can transition from streaming to audio co w/ higher margins.
It is optically cheap at P/S of 5, but that's due to low margins. CF +ve because they can stretch WC.
6/n
It is optically cheap at P/S of 5, but that's due to low margins. CF +ve because they can stretch WC.
6/n
This will be an interesting company to watch. I like the management & company, but feel it's too big of a gamble currently. I'll be watching the execution closely & if valuations get cheaper.
7/7
7/7