Is Spotify a Good Buy?

Posted on

The stock price of Spotify has increased  by 12 percent at the close of trading, there is still some amount of doubt surrounding the success of the stock. SPOT was directly listed on the NYSE with a reference price of USD$132.00 but once trading started it quickly jumped to USD$165.90. However, the price fell and closed in its most recent trading session at US$149.01. The company is now worth around USD$26 billion, more than the value of Twitter.

The decrease in stock price is attributed to investors’ lack of confidence in the company’s business model. Spotify had no intentions of raising capital with this IPO and that is why the company opted to directly list the stock on the NYSE so shareholders can sell shares directly to the public instead of using an intermediary. This worked in Spotify’s favour as they did not have to pay hefty fees from investment banks.

Currently Spotify has an estimated 70 million paying subscribers and almost 90 million free listeners, however, the company is yet to turn a profit. The music streaming giant earns an estimated US$5 billion a year in revenue but pays out more than three quarters of that amount in royalties to music labels, songwriters, artists and producers.

Competition in the online music streaming industry is strong but Spotify has been finding ways to increase revenue from not only through paid subscriptions and advertisements but from original content and podcasts. Many analysts have already casted doubts on Spotify’s viability even though the music industry needs music streaming companies like Spotify.

Music streaming can be transformed into a profitable platform but Spotify needs to diversify its core offerings to increase its paying subscribers. Not to mention the company needs to turn a profit as it is competing against companies such as Apple, Amazon, Google, among others, which use the music streaming business to support their core product.

Spotify has already disrupted the entertainment market with its debut and may very well change the way people stream music online. Would you take a chance on Spotify?


If you liked this article and want to read other great stories, try our Archives. Also if you are new to investing you can try our Investment Basics Blog.

If you want to start investing with SSL but don’t have the time to monitor the market or to conduct the trades yourself then you can choose one of SSL’s managed Financial Planning products. We offer a variety of products for every type of investor and if you are interested in managing online trades yourself and having complete control over your investment portfolio then you can try SSL’s Brokerage account.

Follow us on Facebook, LinkedIn and Twitter please leave us a review.

Share it with a friend: