Spotify's $100 billion rally
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Spotify ended last week worth more than $100 billion — a fivefold increase in less than two years.
Why it matters: Spotify is now worth more than twice as much as Universal Music Group, home to artists including Taylor Swift and Drake.
- In fact, Spotify looks like it could well be worth more than the three major record labels combined. (Sony Music, as part of Sony Corporation, doesn't have an independent stock market valuation, but Warner and Universal together are worth just $61 billion.)
Zoom out: Spotify was one of those companies (think Zoom, Slack, Peloton) that surged in price during the first year or so of the pandemic, then plunged to well below its pre-pandemic level in 2022.
- The "live music is dead" thesis that drove the share price in 2021 turned out to be spectacularly wrong — see Swift's $2 billion Eras Tour — and Spotify did overpay massively in the podcasting space.
- But its core music-streaming business turned out to be stronger and more resilient than anybody anticipated.
By the numbers: Spotify managed to turn a more than $300 million loss in the second quarter of 2023 — its fifth quarterly loss in a row — into a more than $300 million profit in the third quarter of 2024.
- The company's $764 million of profits over the last 12 months are its highest ever. Five quarters ago, that number was a loss of over $1 billion.
Between the lines: Spotify has reached "critical mass," says Morningstar analyst Matthew Dolgin. It now has more than a quarter of a billion premium subscribers, and the €3.5 billion ($3.7 billion) those subscribers spent on Spotify in the third quarter was up 21% from the previous year.
- Meanwhile, Spotify's operating expenses actually fell year-on-year.
- "Spotify has reached a level of scale and importance such that we think the labels would be engaging in mutually-assured devastation if they tried to drive too hard a bargain," Dolgin tells Axios.
The big picture: Spotify is a music company that does well when it drives as many consumers as possible to spend as much money on music as possible.
- That's in stark contrast to competitors like Apple, YouTube and TikTok.
- "Spotify is the engine driving music industry revenue higher," Pivotal Research analyst Jeffrey Wlodarczak notes.
The bottom line: Spotify stock pulled back a little on Monday, closing at $482.52 — down 3.2% on the day but still up 155% this year.
- "We think Spotify has gotten too expensive but not ridiculously so," Dolgin says. "We think it is a phenomenal company that is best of breed in its industry and has fantastic prospects."
