Table of Contents & Ground Rules
The point of this investment thesis is to have clarity on whether to invest in Spotify or not and, more importantly, break down exactly why. Too many people “invest” by just punting based on spurious factors such as recent price movement, superficial valuation multiples, or hearsay from peers or talking heads in media. Ultimately, it’s about decomposing the stock price into EXPECTATIONS that are baked in, and then answering the question “are these baked-in-expectations too optimistic or too pessimistic?”
Digging in – to the expectations that are baked into stock prices – takes time and effort. Most people don’t have the time or patience for this. But we love it!
Let us do the heavy lifting for you.
Here are the contents of the investment thesis:
- Thesis Summary
- Q1 2022 Earnings Report
- What needs to happen?
- Business Fundamentals
- Competitive Advantage & Moat
- Management Strategy
- Growth Drivers
- Other Key Risk
- Financial Model Risk
- Cash Flow: Moving Parts
- Revenue Growth Matrix
- Revenue Growth: MAU Expectations
- Revenue Growth: ARPU Expectations
- Revenue Growth: Historical Context
- Gross Margin Expectations
- Fixed Costs Expectations
- More on Competition
- Valuation Summary
- Cash Flow Details
- Our previous Spotify Thesis
- Competitive Advantage
- Durability of Competitive Advantage
- Management Quality
- Our minimum return requirement is: 50% in less than 5 years.
- Based on this return requirement, we ask ourselves, “What do we need to believe about the fundamentals of the business to achieve our return requirement (or more)?”
- Then we answer the important question: "do we believe it?"
- In the Spotify thesis, we've left out the value of "real options", meaning cash flow from future business lines such as Audiobooks or Live Shows. We've implicitly assumed that their impact on Free Cash Flow will be approximately $0.
Before we dig in, here’s a free snippet from one of the sections below – do you believe this can happen? How confident are you?