Spotify Investment Thesis

Published on 03/13/21 | Saurav | 4,912 Words

The BuyGist:

  • This is our thesis as posted on March 4, 2020 - now in magazine format.
  • The Thesis Summary (somewhat redacted) is available to all readers. 
  • Thesis details - including 1) BUY/HOLD/IGNORE conclusions 2) whether we still hold the stock, and 3) Valuations - are for members only, accessible upon login. 
  • Please see our subscriptions plans for full access, if you haven't already.

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.
Please Log In or Subscribe to read the full article. Thank you.

We use cookies on this site to ensure the best service possible.