Thesis Summary
As of March 3, 2020: Growth in number of smartphones and in music streaming penetration is primed to boom in the next 3 years. Spotify will likely command a high market share (albeit reduced), given its focus on Personalization and Ubiquity.
Competitive Advantage - The Castle:
- Core Competency? Music Streaming Software – the pioneer in this revolution.
- Product Differentiation? Claims to have better data & software. Translates to better UI/UX.
- Historical Growth? High Revenue and Active User growth. Expected to continue.
Durability of Competitive Advantage - The Moat:
- Competition/Threats? Apple and Amazon have deep pockets.
- Moat? User History + better AI = better experience. Also, relationships with Music Labels.
- Market Share Growth? Expect that it will decrease from current level of 50%.
Management Quality - The Generals:
- Strategy & Action? Good. Focused on Scale, Software and Acquisitions.
- Sustainable Return on Equity? Low. Margin pressure will remain.
- Sustainable Free Cash Flow? *****Redacted.