While some investors see Spotify Technology as poised to dominate its tech rivals and conquer music and entire audio/podcasting industry.
Investors cite attributes of Spotify (SPOT) as being a fast-growing, youth-focused, cloud-operated, subscription-based service, with a passionate CEO willing to pour cash into podcasting, where U.S. revenues are expected to more than double from 2017-2020 to more than $600 million, Barron’s reported.
But at $25 billion, Barron's notes that Spotify’s valuation exceeds the annual revenue of the entire global recorded-music industry, meaning bulls are betting on SPOT being the next Netflix and "outmaneuvers all the tech giants."
On the flip side, critics warn there is threatening competition from rivals such as Apple, Google, and Amazon. There also is pushback from artists who complain about how little they get from Spotify streaming.
A year after Spotify first listed its shares on the New York Stock Exchange at $165.90, "investors are debating whether it is indeed the next Netflix or a jukebox that doesn’t get to keep most of its quarters," Barron's explained.
Spotify’s stock has climbed and plunged — from a high of $198.99 to a low of $103.29. Spotify stock (SPOT) is now at $136.
“Spotify’s business model at this stage is really tough because the bulk of the revenue they’re generating goes to the labels and the artists,” says David Marcus, CEO of Evermore Global Advisors. “While [the company] has a humongous valuation, they now have to figure out how to get a bigger piece of the pie.”
The largest slice of the pie goes to the three largest music labels: Vivendi ’s (VIV.France) Universal Music Group division, Sony ’s (SNE) Sony Music division, and privately held Warner Music Group.
“The place to be at this stage is with the content,” Marcus says. His firm owns a stake in Vivendi, but not in Spotify, Barron's said.
To be sure, threats to Spotify stock loom at seemingly every turn of the dial.
Spotify shares recently fell 4 percent after a report said Amazon.com Inc was in talks to launch a free ad-supported music service, which is expected to intensify competition for the music streaming leader, Reuters reported.
Amazon would market the free music service through its voice-activated Echo speakers, a Billboard report said.
So far, the e-commerce giant offers its Prime Music service as part of its Amazon Prime subscription service at $119 per year. Amazon Prime also offers free delivery and access to its Prime Video service.
In addition, the company sells Amazon Music Unlimited subscriptions for $9.99 a month, which is available for Prime members at a lower fee of $7.99 per month.
Spotify had 116 million ad-supported users and 96 million paying subscribers as of February 2019. Amazon has said “tens of millions” of paid customers listen to Prime Music and its standalone Amazon Music Unlimited service.
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