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.
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 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 info@NataliePace.com to learn more.
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.
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.)
Spotify has a share repurchase program in place to the tune of $1 billion, of which about $101 million has been used.
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 info@NataliePace.com.
Other Blogs of Interest
2022 Crystal Ball in Stocks, Real Estate, Crypto, Cannabis, Gold, Silver & More.
Interview with the Chief Investment Strategist of Charles Schwab & Co., Inc.
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Rebalancing Your Nest Egg IQ Test.
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Videoconferencing in a Post-Pandemic World (featuring Zoom & Teladoc).
Sanctuary Sandwich Home. Multigenerational Housing. Interview with Lawrence Yun, the chief economist of the National Association of Realtors.
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The Stimulus Check. Party Like It's 1999.
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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.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She blogs on Huffington Post and Medium, and is a frequent guest contributor to national news shows and magazines. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.