Spotify. Music To My Ears.

A couple of decades ago, executives (including Steve Jobs) had a vision that music would be in the cloud, and you could access your favorite artists on demand from anywhere at any time. Today, Spotify, Apple Music and others are prolific. Spotify claims that people in 184 countries and territories have access to 82 million tracks. Saturday Night Live even folded the company into a sketch this year.
 
Many of us heard about Spotify recently when there was a backlash against the company for removing Neil Young music, when the artist protested Joe Rogan’s podcast on Spotify. Harry and Meghan’s Archewell Audio also has a podcast on Spotify.
 
Scandal
The Joe Rogan/Neil Young scandal hasn’t cost Spotify as much as you might think. The company traded at $175/share on Jan. 26, 2022 (the day it removed Neil Young’s music at “his request”). Today, shares are trading for $163.74. That’s down a little. However, the current price is down significantly from the high of $387.44 set on Feb. 19, 2021. What happened over the past year?
 
Churn
Churn happened. In short, Spotify’s price was quite lofty. Big money movers decided to lock in profits. Shares dropped. All of this happened before the Rogan scandal.
 
Churn isn’t something unique to Spotify. As Liz Ann Sonders, the Chief Investment Strategist of Charles Schwab & Co. Inc., revealed in our interview last month:
 
More than 90% of the NASDAQ’s members had at least a 10% correction at some point in 2021. As of the first few weeks of 2022, 45% of NASDAQ stocks were down at least 50% from their 52-week highs. 
 
When I asked the Senior Index Analyst of S&P Dow Jones Indices who was selling, he emailed me that it appeared to be institutional. There is a lot of hot money out there, seeking quick profits. That creates volatility.
 
In a world where equity prices are very expensive in general, it pays to know when your favorite stock has soared to the nether sphere. The hot, institutional money certainly is aware of it. If you are trading and you don’t know valuation strategies, now is the time to get savvy. If you haven’t read my 2022 Crystal Ball blog yet, click to access. You can learn about how to evaluate hot stocks on your own at our March 18-20, 2022 Financial Empowerment Retreat. Click to access that flyer or email [email protected] to learn more.

CAPE ratio data provided by Prof. Robert Shiller Yale.edu. Click to access.

Value
Spotify is still cash negative, with a net loss of 34 million euros in 2021. Smaller companies have to worry about borrowing costs in a rising interest rate environment. Spotify has 2.86 billion euros in cash and cash equivalents, and is increasing its cash accumulation quarter over quarter, despite the loss on paper. Since there are no earnings, we have to use another method of valuation than price-earnings ratio. The price-sales ratio for Spotify is down to 2.94, compared to an industry standard of 7.05 and Apple’s 7.71. Spotify is currently valued at $31.47 billion, compared to the high of over $51 billion in March of 2021. And, of course, buyers today are paying less than half for shares, compared to February of 2021.
 
Growth
Spotify leads the industry in growth, with revenue growth of 24% in the most recent quarter. (How many of your friends subscribe to Spotify versus Apple Music, Sirius or UMG?) The company’s forward outlook is projecting flat growth in the 1st quarter of 2022. (This projection was issued after the Joe Rogan scandal, so it should be factoring that in.)
 
Share Repurchases
Spotify has a share repurchase program in place to the tune of $1 billion, of which about $101 million has been used.
 
Bottom Line
Spotify’s current price is music to my ears. Of course, a war in Ukraine or a Taper Tantrum by investors could stop all the music on Wall Street. In precarious times during an overpriced market, it’s important to be properly diversified and safe, in addition to being hot.

If you'd like to see our Music Stock Report Card, email [email protected]. 
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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.

About Natalie Pace
Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 5th edition of The ABCs of Money was released on September 17, 2021. 

Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden.

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