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2021-08-25
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Where Will Spotify Stock Be In 10 Years?
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{"i18n":{"language":"zh_CN"},"detailType":1,"isChannel":false,"data":{"magic":2,"id":837801874,"tweetId":"837801874","gmtCreate":1629870121198,"gmtModify":1633681802126,"author":{"id":4087957536783020,"idStr":"4087957536783020","authorId":4087957536783020,"authorIdStr":"4087957536783020","name":"lydiaxlim","avatar":"https://static.tigerbbs.com/22998875507976ad47d8f09dd2f9fdeb","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":5,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body><p>thanks!</p></body></html>","htmlText":"<html><head></head><body><p>thanks!</p></body></html>","text":"thanks!","highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/837801874","repostId":1188113667,"repostType":4,"repost":{"id":"1188113667","kind":"news","pubTimestamp":1629796783,"share":"https://www.laohu8.com/m/news/1188113667?lang=&edition=full","pubTime":"2021-08-24 17:19","market":"us","language":"en","title":"Where Will Spotify Stock Be In 10 Years?","url":"https://stock-news.laohu8.com/highlight/detail?id=1188113667","media":"seekingalpha","summary":"Summary\n\nYears go by and no profit. Meanwhile, competitors such as YouTube, Apple, or Amazon, who ha","content":"<p><b>Summary</b></p>\n<ul>\n <li>Years go by and no profit. Meanwhile, competitors such as YouTube, Apple, or Amazon, who have plenty of cash, are becoming serious threats as they can afford to operate at a loss.</li>\n <li>Spotify reminds me of Netflix, first mover advantage, loyal customer base, friendly platform and very good AI implementation. As Netflix did, Spotify is shifting towards original content.</li>\n <li>I am betting hard on podcast advertising and Spotify owning content, which seems to be Spotify's new business plan. My model tells me that Spotify could do €47.6B in revenues by 2030.</li>\n <li>The stock seems cheap, but being cheap is not enough to consider it a buy. I have done a simple 10-year DCF model to predict the return of an investment in Spotify at today's price.</li>\n <li>I will discuss any further movements in Spotify (offerings, earnings reports, M&A, etc.) on Twitter, as always.</li>\n</ul>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/7ed36ab8d6c0a7fd00d2359ff4b3dd79\" tg-width=\"768\" tg-height=\"513\" width=\"100%\" height=\"auto\"><span>hocus-focus/iStock Unreleased via Getty Images</span></p>\n<p>A lot has happened to Spotify (SPOT) during the last year. First, the stock soared over 165% and reached $364 in February. Since then, the stock price has declined over 40%. The company was clearly overvalued in February, but after a 40% drawdown, investors should consider whether Spotify is a buy at today's price.</p>\n<p>Multiple compression can happen because of a decline in price or an improvement in the business fundamentals. For instance, Amazon (AMZN), whose price has been flat for a year, has almost cut in half many multiples thanks to an improvement in the business and better earnings.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/5157338f768abc4e8c77f907277a1f7c\" tg-width=\"635\" tg-height=\"509\" width=\"100%\" height=\"auto\"><span>Data byYCharts</span></p>\n<p>In Spotify's case, however, multiple compression has happened mainly because of a decline in the stock price, investors should also consider that. Spotify's fundamentals have improved, but the company has yet to turn a profit (€20Mnet loss and-€0.19EPS in Q2).</p>\n<p>Years go by and no profit. Meanwhile, competitors such as YouTube Music(NASDAQ:GOOG)(GOOGL), Apple Music (AAPL), or Amazon Music, who have all the cash in the world, are becoming serious threats as they can afford to operate at a loss.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/f34452f126ba1841b53bfbe9d624f129\" tg-width=\"640\" tg-height=\"360\" width=\"100%\" height=\"auto\"><span>Source:Midia</span></p>\n<p></p>\n<blockquote>\n Spotify continues its global dominance, adding 27 million net subscribers between Q1 2020 and Q1 2021,\n <b>more than any other</b>single service. However, it\n <b>lost two points of market share</b>over the period because its\n <b>percentage growth rate trailed that of its leading competitors</b>. Google was the fastest-growing music streaming service in 2020, growing by\n <b>60%</b>, with Tencent second at\n <b>40%</b>. Amazon continued its steady trajectory, up\n <b>27%</b>, while Apple grew by just\n <b>12%</b>.\n</blockquote>\n<p>It's difficult to say if patience will pay off on this name, butSpotifyis the market leader and has a successful brand with lots of consumers. However, after all these years, investors need more than that. A profitable business plan is the number one priority for Spotify, but the<b>expensive</b>music industry and its cash-heavy competitors are getting in the way.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/0f01532cf68e951b6d04e9202a6f1ccf\" tg-width=\"640\" tg-height=\"84\" width=\"100%\" height=\"auto\"><span>Source:SEC Form 6-K</span></p>\n<p><b>Spotify</b></p>\n<p>The global music streaming market is forecasted to grow at16%CAGR until 2023. As it happens with many growing markets, competitors do not miss the opportunity to jump in. Spotify reminds me of Netflix (NFLX), first-mover advantage, loyal customer base, friendly platform, and very good AI implementation.</p>\n<p>The problem is that songs, like movies, are limited. Apple Music, Amazon Music, YouTube Music, and Spotify have very similar content. Netflix's solution for this was to produce their own content, their own movies. Spotify is doing this withpodcasts, on a small scale though.</p>\n<blockquote>\n We also began rolling out Paid Podcast Subscriptions and Spotify Open Access, both of which offer solutions for creators and publishers to earn revenue from their Spotify listeners. These product innovations unlock an entirely new class of content on Spotify.\n</blockquote>\n<p>That's how you win vs. your competitors in a crowded industry. Spotify needs exclusivity. What has proven to differentiate Spotify from its competitors is their platform/app. The recommendations(based on AI)and the daily mix, also the platform is easy to use with friends and you can use it in many devices.</p>\n<p>Despite analysts' estimates of profitability in 2023,</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/bd636331a75214462d4992026a36dc19\" tg-width=\"640\" tg-height=\"168\" width=\"100%\" height=\"auto\"><span>Source:Seeking Alpha</span></p>\n<p>I believeSpotify'scurrent business model is not sustainable. Though, analysts have probably priced in some changes in the business, which, on the other hand, I believe Spotify could accomplish. Management agreed and gave some interesting information during theearnings call:</p>\n<blockquote>\n Then, there is the growing strength and importance of our ads business. Admittedly, this is an area where I previously didn’t spend much time, but it’s become impossible to ignore. It’s now safe to say it's becoming a second big revenue driver for Spotify. And I am especially inspired by the early success of the Spotify Audience Network. While we are growing the overall ads business from a\n <b>small base</b>, the potential is significant and the trendline is clear: We saw strong growth of\n <b>110%</b>year over year. Adjusting for FX, the growth is even more impressive, coming in at\n <b>126%</b>. And looking at Podcasts, podcast revenue was up over\n <b>627%</b>year over year -- or nearly\n <b>200%</b>on an organic basis. The continued out performance is currently limited only by the availability of our inventory, which is something we are actively solving for.\n</blockquote>\n<p>This is excellent. Management knows where the company falls short and what they have not done well. Now they are looking at advertising and podcasts as serious sources of revenue. CEO Daniel Ek stated on the earnings call:</p>\n<blockquote>\n It’s clear to me that the days of our ads business accounting for less than 10% of our total revenue are behind us...going forward I expect ads to grow to be a substantial part of our revenue mix.\n</blockquote>\n<p>However, that leads us to the same problem. Apple, YouTube, and Amazon have far more cash to spend on signing up exclusives than Spotify.</p>\n<p>The company announced aStock Repurchase Program, up to $1B</p>\n<blockquote>\n ...beginning in the third quarter of 2021. Repurchases of up to 10,000,000 of the Company’s ordinary shares have been authorized by the Company’s general meeting of shareholders, and the Board of Directors approved such repurchases up to the amount of $1.0 billion. The authorization to repurchase will expire on\n <b>April 21, 2026</b>.\n</blockquote>\n<p>It accounts for 2.5% of the actual market cap. Until I see that the buybacks have actually been made, this does not make me more or less bullish on the company. In fact, I believe Spotify is in no place to do buybacks right now. They desperately need the money to get more content.</p>\n<p>The repurchase program does not obligate the Company to acquire any particular amount of ordinary shares, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion.</p>\n<p><b>Valuation</b></p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/f2c6c4d09dac386c3e0e4706a4c04690\" tg-width=\"635\" tg-height=\"481\" width=\"100%\" height=\"auto\"><span>Data byYCharts</span></p>\n<p>The market is discounting lower MAUs growth, lower margins, lower revenue growth, competitors taking market share from Spotify, and Spotify's future difficulties to achieve profitability. There are two ways to look at Spotify's valuation.</p>\n<ol>\n <li>Believe that the market is right. In such case, you should not buy Spotify shares. It would be like buying a dying business.</li>\n <li>Believe that the market is underestimatingSpotify'sfuture growth, and therefore, believe that the stock is cheap.</li>\n</ol>\n<p>An investment decision has to be black or white, buy or sell (not buy), otherwise you will end up selling due to lack of conviction in the company.</p>\n<p>Let's continue with number 2. The stock is cheap. The company trades at pre-pandemic levels, its forward EV/Revenues multiple is under the three-year mean. However, the company now has way better growth opportunities than it had in other years.</p>\n<p><img src=\"https://static.tigerbbs.com/dd65325df895ad9e962620426e30993e\" tg-width=\"640\" tg-height=\"424\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\"></p>\n<p>Being cheap is not enough to consider the stock a buy. I have done a simple 10-year DCF model to predict the return of an investment in Spotify at today's price.</p>\n<p>Concerning revenue, I took Daniel Ek's words on theearnings calland did estimates for 2030.</p>\n<blockquote>\n The platform we are building is all about moving from 8 million to 50 million creators and from 400 million to \n <b>more than one billion users</b> on our platform.\n</blockquote>\n<p>I believe my €5.5 Premium ARPU estimate is pretty achievable. However, I am betting quite hard on podcast advertising by multiplying, by almost four, the current ad-supported ARPU. There could be other revenue streams, but I did not want to complicate the model. I maintain today's conversion rate of 45%. It suggests to me that Spotify could do €47.6B in revenues by 2030, or grow revenue by 18%-19% CAGR for nine years.</p>\n<p>Although this entire model is based on the CEO's statement, if the company cannot accomplish that, the model falls apart.</p>\n<p><img src=\"https://static.tigerbbs.com/511f32e02a7faa2af848fba3344752ec\" tg-width=\"579\" tg-height=\"243\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\"></p>\n<p>Also, if I am betting hard on podcast advertising and Spotify owning content, I believe it is relatively easy to estimate that Spotify will have 35% gross margins or more in the future.</p>\n<p>All the numbers are in billions of €, or just billions in the shares case. The<b>fair value and price are also in €</b>, it made little sense to change it to dollars because all the accounting is in €. The discount rate is 15%, which is my minimum required rate of return for hyper-growth companies or growth companies with many risks or assumptions, like Spotify.</p>\n<p>Choosing a TV multiple is where I have had more doubts. As you know, it is difficult to predict what a company is going to do in 10 years. The fair value changes a lot if you put 15x instead of 20x, as you can see below.</p>\n<p><img src=\"https://static.tigerbbs.com/40bc07f025ed12546ae5c9c3010ea2b5\" tg-width=\"640\" tg-height=\"180\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\"></p>\n<p><img src=\"https://static.tigerbbs.com/df452502c81bcc4d4f76563e823f14db\" tg-width=\"640\" tg-height=\"74\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\"></p>\n<p>The mean between the two options is €200 and would be my PT. It means that the company has an 8.1% upside at today's price, with a discount rate of 15%. If you reduce the discount rate to 10% the company looks much more attractive. However, I do not recommend investors to do that. The foundations of my model are the CEO's words, which are reliable, but they are still predictions, albeit they came from the CEO. In addition, podcast advertising is just starting, and I have not used margin of safety for my price target. Hence, I believe a 15% discount rate is rather necessary.</p>\n<p><b>Takeaway</b></p>\n<p>I believe Spotify has a lot of potential if and this is huge if they can execute their \"new\" business plan.</p>\n<ol>\n <li>Over one billion users long-term.</li>\n <li>Advertising and</li>\n <li>podcasts as serious sources of revenue.</li>\n <li>Exclusive content</li>\n</ol>\n<p>I could not have been clearer. Spotify has a plan, and I have given you all the numbers. Investors should consider whether they believe in Daniel Ek's vision. I believe Spotify will give excellent returns to investors in the following years if they can execute their strategy.</p>\n<p>I write regularly on Seeking Alpha and I will discuss any further movements in Spotify (offerings, earnings reports, M&A, etc.) onTwitter, as always.</p>","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Where Will Spotify Stock Be In 10 Years?</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nWhere Will Spotify Stock Be In 10 Years?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-24 17:19 GMT+8 <a href=https://seekingalpha.com/article/4451375-where-will-spotify-stock-be-in-10-years><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nYears go by and no profit. Meanwhile, competitors such as YouTube, Apple, or Amazon, who have plenty of cash, are becoming serious threats as they can afford to operate at a loss.\nSpotify ...</p>\n\n<a href=\"https://seekingalpha.com/article/4451375-where-will-spotify-stock-be-in-10-years\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SPOT":"Spotify Technology S.A."},"source_url":"https://seekingalpha.com/article/4451375-where-will-spotify-stock-be-in-10-years","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1188113667","content_text":"Summary\n\nYears go by and no profit. Meanwhile, competitors such as YouTube, Apple, or Amazon, who have plenty of cash, are becoming serious threats as they can afford to operate at a loss.\nSpotify reminds me of Netflix, first mover advantage, loyal customer base, friendly platform and very good AI implementation. As Netflix did, Spotify is shifting towards original content.\nI am betting hard on podcast advertising and Spotify owning content, which seems to be Spotify's new business plan. My model tells me that Spotify could do €47.6B in revenues by 2030.\nThe stock seems cheap, but being cheap is not enough to consider it a buy. I have done a simple 10-year DCF model to predict the return of an investment in Spotify at today's price.\nI will discuss any further movements in Spotify (offerings, earnings reports, M&A, etc.) on Twitter, as always.\n\nhocus-focus/iStock Unreleased via Getty Images\nA lot has happened to Spotify (SPOT) during the last year. First, the stock soared over 165% and reached $364 in February. Since then, the stock price has declined over 40%. The company was clearly overvalued in February, but after a 40% drawdown, investors should consider whether Spotify is a buy at today's price.\nMultiple compression can happen because of a decline in price or an improvement in the business fundamentals. For instance, Amazon (AMZN), whose price has been flat for a year, has almost cut in half many multiples thanks to an improvement in the business and better earnings.\nData byYCharts\nIn Spotify's case, however, multiple compression has happened mainly because of a decline in the stock price, investors should also consider that. Spotify's fundamentals have improved, but the company has yet to turn a profit (€20Mnet loss and-€0.19EPS in Q2).\nYears go by and no profit. Meanwhile, competitors such as YouTube Music(NASDAQ:GOOG)(GOOGL), Apple Music (AAPL), or Amazon Music, who have all the cash in the world, are becoming serious threats as they can afford to operate at a loss.\nSource:Midia\n\n\n Spotify continues its global dominance, adding 27 million net subscribers between Q1 2020 and Q1 2021,\n more than any othersingle service. However, it\n lost two points of market shareover the period because its\n percentage growth rate trailed that of its leading competitors. Google was the fastest-growing music streaming service in 2020, growing by\n 60%, with Tencent second at\n 40%. Amazon continued its steady trajectory, up\n 27%, while Apple grew by just\n 12%.\n\nIt's difficult to say if patience will pay off on this name, butSpotifyis the market leader and has a successful brand with lots of consumers. However, after all these years, investors need more than that. A profitable business plan is the number one priority for Spotify, but theexpensivemusic industry and its cash-heavy competitors are getting in the way.\nSource:SEC Form 6-K\nSpotify\nThe global music streaming market is forecasted to grow at16%CAGR until 2023. As it happens with many growing markets, competitors do not miss the opportunity to jump in. Spotify reminds me of Netflix (NFLX), first-mover advantage, loyal customer base, friendly platform, and very good AI implementation.\nThe problem is that songs, like movies, are limited. Apple Music, Amazon Music, YouTube Music, and Spotify have very similar content. Netflix's solution for this was to produce their own content, their own movies. Spotify is doing this withpodcasts, on a small scale though.\n\n We also began rolling out Paid Podcast Subscriptions and Spotify Open Access, both of which offer solutions for creators and publishers to earn revenue from their Spotify listeners. These product innovations unlock an entirely new class of content on Spotify.\n\nThat's how you win vs. your competitors in a crowded industry. Spotify needs exclusivity. What has proven to differentiate Spotify from its competitors is their platform/app. The recommendations(based on AI)and the daily mix, also the platform is easy to use with friends and you can use it in many devices.\nDespite analysts' estimates of profitability in 2023,\nSource:Seeking Alpha\nI believeSpotify'scurrent business model is not sustainable. Though, analysts have probably priced in some changes in the business, which, on the other hand, I believe Spotify could accomplish. Management agreed and gave some interesting information during theearnings call:\n\n Then, there is the growing strength and importance of our ads business. Admittedly, this is an area where I previously didn’t spend much time, but it’s become impossible to ignore. It’s now safe to say it's becoming a second big revenue driver for Spotify. And I am especially inspired by the early success of the Spotify Audience Network. While we are growing the overall ads business from a\n small base, the potential is significant and the trendline is clear: We saw strong growth of\n 110%year over year. Adjusting for FX, the growth is even more impressive, coming in at\n 126%. And looking at Podcasts, podcast revenue was up over\n 627%year over year -- or nearly\n 200%on an organic basis. The continued out performance is currently limited only by the availability of our inventory, which is something we are actively solving for.\n\nThis is excellent. Management knows where the company falls short and what they have not done well. Now they are looking at advertising and podcasts as serious sources of revenue. CEO Daniel Ek stated on the earnings call:\n\n It’s clear to me that the days of our ads business accounting for less than 10% of our total revenue are behind us...going forward I expect ads to grow to be a substantial part of our revenue mix.\n\nHowever, that leads us to the same problem. Apple, YouTube, and Amazon have far more cash to spend on signing up exclusives than Spotify.\nThe company announced aStock Repurchase Program, up to $1B\n\n ...beginning in the third quarter of 2021. Repurchases of up to 10,000,000 of the Company’s ordinary shares have been authorized by the Company’s general meeting of shareholders, and the Board of Directors approved such repurchases up to the amount of $1.0 billion. The authorization to repurchase will expire on\n April 21, 2026.\n\nIt accounts for 2.5% of the actual market cap. Until I see that the buybacks have actually been made, this does not make me more or less bullish on the company. In fact, I believe Spotify is in no place to do buybacks right now. They desperately need the money to get more content.\nThe repurchase program does not obligate the Company to acquire any particular amount of ordinary shares, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion.\nValuation\nData byYCharts\nThe market is discounting lower MAUs growth, lower margins, lower revenue growth, competitors taking market share from Spotify, and Spotify's future difficulties to achieve profitability. There are two ways to look at Spotify's valuation.\n\nBelieve that the market is right. In such case, you should not buy Spotify shares. It would be like buying a dying business.\nBelieve that the market is underestimatingSpotify'sfuture growth, and therefore, believe that the stock is cheap.\n\nAn investment decision has to be black or white, buy or sell (not buy), otherwise you will end up selling due to lack of conviction in the company.\nLet's continue with number 2. The stock is cheap. The company trades at pre-pandemic levels, its forward EV/Revenues multiple is under the three-year mean. However, the company now has way better growth opportunities than it had in other years.\n\nBeing cheap is not enough to consider the stock a buy. I have done a simple 10-year DCF model to predict the return of an investment in Spotify at today's price.\nConcerning revenue, I took Daniel Ek's words on theearnings calland did estimates for 2030.\n\n The platform we are building is all about moving from 8 million to 50 million creators and from 400 million to \n more than one billion users on our platform.\n\nI believe my €5.5 Premium ARPU estimate is pretty achievable. However, I am betting quite hard on podcast advertising by multiplying, by almost four, the current ad-supported ARPU. There could be other revenue streams, but I did not want to complicate the model. I maintain today's conversion rate of 45%. It suggests to me that Spotify could do €47.6B in revenues by 2030, or grow revenue by 18%-19% CAGR for nine years.\nAlthough this entire model is based on the CEO's statement, if the company cannot accomplish that, the model falls apart.\n\nAlso, if I am betting hard on podcast advertising and Spotify owning content, I believe it is relatively easy to estimate that Spotify will have 35% gross margins or more in the future.\nAll the numbers are in billions of €, or just billions in the shares case. Thefair value and price are also in €, it made little sense to change it to dollars because all the accounting is in €. The discount rate is 15%, which is my minimum required rate of return for hyper-growth companies or growth companies with many risks or assumptions, like Spotify.\nChoosing a TV multiple is where I have had more doubts. As you know, it is difficult to predict what a company is going to do in 10 years. The fair value changes a lot if you put 15x instead of 20x, as you can see below.\n\n\nThe mean between the two options is €200 and would be my PT. It means that the company has an 8.1% upside at today's price, with a discount rate of 15%. If you reduce the discount rate to 10% the company looks much more attractive. However, I do not recommend investors to do that. The foundations of my model are the CEO's words, which are reliable, but they are still predictions, albeit they came from the CEO. In addition, podcast advertising is just starting, and I have not used margin of safety for my price target. Hence, I believe a 15% discount rate is rather necessary.\nTakeaway\nI believe Spotify has a lot of potential if and this is huge if they can execute their \"new\" business plan.\n\nOver one billion users long-term.\nAdvertising and\npodcasts as serious sources of revenue.\nExclusive content\n\nI could not have been clearer. Spotify has a plan, and I have given you all the numbers. Investors should consider whether they believe in Daniel Ek's vision. I believe Spotify will give excellent returns to investors in the following years if they can execute their strategy.\nI write regularly on Seeking Alpha and I will discuss any further movements in Spotify (offerings, earnings reports, M&A, etc.) onTwitter, as always.","news_type":1},"isVote":1,"tweetType":1,"viewCount":74,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":7,"xxTargetLangEnum":"ORIG"},"commentList":[],"isCommentEnd":true,"isTiger":false,"isWeiXinMini":false,"url":"/m/post/837801874"}
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