Quiver Quantitative - Recent congressional trading data from Quiver Quantitative reveals that Spotify has caught the attention of several U.S. lawmakers. Notably, Josh Gottheimer, a Democrat from New Jersey, invested in Spotify (SPOT) shares in July 2023, while Thomas Suozzi, a Democrat from New York, has been actively trading the stock throughout 2021. These trades, alongside Spotify's strong performance metrics, further underscore the company's significant position in the music streaming industry.
Despite its intermediary position often garnering ambivalence, Spotify's recent quarterly results underline its formidable standing in the music industry. The streaming behemoth reported an addition of six million new premium subscribers in Q3, surpassing its forecast by two million. Predictions for Q4 are equally rosy, aiming for an additional nine million subscribers—surpassing analyst expectations. What's significant is that these impressive figures follow Spotify's decision to hike its U.S. subscription rate by 10%, a move that evidently hasn't deterred its growing clientele. This increment seems judicious especially when compared to industry heavyweights Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN), both of whom had augmented their streaming prices earlier. Coupled with strategic cost-cutting from earlier this year, Spotify rejoiced in a surprise operating profit this quarter, marking its first in 24 months.
This robust performance catalyzed a surge in Spotify's shares, witnessing a commendable 11% upswing on Tuesday morning. This is particularly impressive for a stock that had already manifested a growth trajectory almost doubling since the year's inception. Furthermore, it has eclipsed the performance metrics of video-streaming counterparts like Netflix (NASDAQ:NFLX) and Roku (ROKU) However, its current market valuation remains 40% below its zenith two years ago. Such a disparity indicates significant upside potential for the stock, especially considering concerns about the company's growth trajectory and lavish expenditure on exclusive content.
Yet, skepticism surrounding Spotify's business model persists. The music industry's architecture, which centralizes valuable music rights within three colossal record labels, imposes hefty royalties and costs on the platform, consuming nearly three-fourths of its revenue. In contrast, for instance, Netflix boasts a gross margin of 39.5%, starkly higher than Spotify's. However, it's crucial to recognize Spotify's pivotal role in this industry. It's responsible for the lion's share of recorded-music revenue, with a staggering 84% originating from streaming in the U.S. alone in H1. Moreover, its listener base in the U.S. dwarfs that of Apple, Amazon, and YouTube's paid tier combined, based on Evercore ISI's June survey. This dominance renders it indispensable for artists and record labels aiming for maximal reach.
Spotify's financial health is on an upward trajectory. Its Q3 gross margin, standing at 26.4%, witnessed a growth of over two percentage points within a mere three-month span. Optimistic forecasts for Q4 and the forthcoming year have been hinted at, even as it rolls out a novel audiobook offering. Evercore (EVR) analyst, Mark Mahaney, predicts a pivotal year for Spotify in 2023, particularly for its gross margins. Should Spotify sustain its pricing prowess while bolstering its robust subscriber influx, Mahaney anticipates further appreciation in its share price. Indeed, for Spotify, the stage seems set for a resounding encore.
This article was originally published on Quiver Quantitative