By Christiana Sciaudone
Investing.com -- Spotify (NYSE:SPOT) slumped 5% after getting downgraded at Citi.
The firm bumped the audio streaming service to sell from neutral on concerns about its pivot to podcasts, according to CNBC Pro.
“Among four subscription based stocks – Spotify, Roku (NASDAQ:ROKU), Netflix (NASDAQ:NFLX) and SiriusXM – Spotify is the only firm where the Street’s long-term forecasts (through 2023) do not comport to the prevailing valuation," Citi said. "We suspect this disconnect stems from recent enthusiasm around Spotify’s recent podcast pivot.”
Shares of Spotify have about doubled since going public in 2018.
“The cadence of Premium gross additions (through 3Q20) and app download data (through 4Q20) do not show any material benefit from recent podcast investments (that began in 2019),” CNBC Pro reported Citi as saying in a note.
Spotify acquired podcast companies Gimlet Media, Anchor and Parcast about two years ago, as well as sports and entertainment news companies The Ringer and Megaphone. It also has exclusive rights to stream celebrity podcasts, including those from Kim Kardashian West, Michelle Obama and the Duke and Duchess of Sussex, CNBC Pro reported.
“If we were to see a material positive inflection in app downloads or Premium subs (from higher gross adds or materially lower churn), we would alter our view,” Citi said. “But, our fear is that if podcasting doesn’t provide a way for Spotify to shift away from music label dependence, the Street may reassess the underlying value of the business. And, that would be bad for Spotify’s multiple and equity value.”
Spotify has also struggled to produce consistent profits, with losses per share outweighing gains, according to data compiled by Investing.com. That said, revenue has been inching higher over the quarters, and is expected to bust through $2 billion for the three months ended in December.
Spotify is scheduled to report earnings on Feb. 3.