Shares of Spotify Technology S.A. (NYSE: SPOT) recovered Wednesday after falling 4.02% Tuesday.
The share price remained above the November 4 low of $69.29. Does this mean we’ve heard the last of his downtrend?
Spotify tried to rally in the summer, roughly along with the broader market, but it fizzled and the stock was trending lower overall, though it posted a 5.78% gain in a month.
The streaming audio service is making headlines this week as it rolled out its annual year-end feature called Spotify Wrapped, which compiles a user’s listener data from the previous year, categorized by music categories, most listened to, and other designations. The feature was launched in 2016.
Struggled during the pandemic
Spotify, which went public in April 2018, is based in Sweden. After going public, it struggled to regain its 2019 highs and fell in line with the rest of the market in early 2020. But Spotify failed to coexist with other streaming stocks such as Netflix Inc. (NASDAQ: NFLX)which staged a huge success as subscribers craved home entertainment in the early days of the pandemic.
The difference, of course, is that people tend to listen to music and podcasts on their commute, which were eliminated while stay-at-home orders were in place. Usage across most Spotify platforms and devices dropped in 2020.
However, the use of TVs and game consoles increased that year as people listened to music at home in familiar ways: while cooking, doing housework or spending time with the family.
That helped, no doubt, but it wasn’t enough to limit the company’s losses as there was a net drop in the number of daily active users.
Fast forward to 2022, the stock is down 67.60% over the past year and 20.23% on a three-year basis.
Netflix, of course, had its own issues retaining subscribers and sustaining growth rates as the pandemic restrictions faded. Nevertheless, it managed to rally in August, September and October 2021, sending it to new highs, while Spotify had a shorter rally and reversed dramatically after a short-lived rally attempt in November last year.
Since then, Spotify has moved significantly lower, as its one-year returns indicate.
Underperforming broader market
Even as the broader market rebounded in October and November this year, Spotify investors continued to hear the sound of a downtrend.
If the chart wasn’t enough to convince you that Spotify is underperforming relative to the broader market, then it’s worth checking out analysts’ opinions.
Since the company reported its third quarter on Oct. 25, 11 analysts have lowered their price targets on Spotify. Nevertheless, Show MarketBeat data that analysts have a “moderate buy” rating for the stock with a consensus price target of $151.72, a potential upside of 101.19%.
In the quarter, Spotify had a total of 456 million monthly active users, a 20% gain from the same quarter last year. It reported 195 million paid subscribers, up 13% from the same quarter in 2021.
The company lost $0.84 per share on revenue of $2.975 billion. Earnings were lower than analysts expected, but sales were higher than expected.
Advertising revenue has increased
Advertising revenue, an area in which the company is seeking growth, was up 19% from the same quarter last year and represented 13% of total revenue.
Spotify said most of the advertising growth came from the podcasting side of the business. year on year and made up 13% of total sales. Spotify rolled out podcasts in 2015. More recently, it added audiobooks and quickly expanded that offering.
It is quite clear that different types of digital streaming platforms represent the future of audio content consumption. Spotify isn’t the only show in town, though. While there is room for upside, analysts’ lowered price targets for the next 12 to 18 months show a degree of tempered enthusiasm that the company has what it takes to generate additional returns.
When you see that, ask yourself if you’re willing to bear the opportunity cost of owning a particular stock, or if you’ll get a higher return elsewhere. That question is certainly relevant when it comes to Spotify.