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Investment Thesis
Although Spotify (SPOT) can be a good application, their stock and their business carry many risks. With a P / E ratio of -178.59 and increasing competition, their path to profitability is becoming more difficult every day. With Apple (AAPL) Music grow, Spotify is starting to see strong competition. Apple Music, obviously, is able to market iPhones, since Apple has both.
To add to that, Apple recently acquired Shazam, which will give them an edge over Spotify if they are implemented in Apple Music. Considering that Apple is making tremendous efforts to add users and that Spotify is just not there, Apple Music has been able to become the best music streaming app. Due to the company's lack of profit, growing competition and the lack of a good gap, it's hard to see Spotify becoming profitable in the near future.
Growing competition
Of course, in the world of streaming music, there is a lot of competition. For the moment, for simplicity, we will focus on Apple Music. Over the years, Spotify and Pandora (NYSE: P) have been the two biggest names in this market until Pandora dies and Spotify takes over. All this changed when Apple Music came on the market. Apple Music had the habit of offering songs as a pay per deal, but they ventured into streaming music not long ago, which turns out to be a wise choice. Thanks to the reductions of Apple Music and its ability to advertise, they were able to take the lead.
Source of the image: Statista
Spotify is already struggling to see the profit and the emergence of Apple Music as an alpha dog has not made things easier. In an interview with The Verge, an Apple spokesman said about the acquisition of Shazam: "Apple Music and Shazam are naturally interested, sharing a passion for discovering music and offering exceptional music experiences to our users. We have exciting projects in store, and we look forward to combining them with the approval of today's agreement. This statement suggests that Shazam's technology will be integrated with Apple Music. This would give another reason for users to join Apple Music.
finances
As many people know, Spotify's finances are not good, simple and simple. With an anticipated P / Es of -178.59, the company does not consider profits. For beginners, their EPS in Q2 was -2.59, with expectations running out of 223.7%. What's even worse, is that their EPS for the first quarter was -1.19, which means that they lost more than double in the second quarter.
Although it is bad, what makes the situation worse is that there is no evidence that they can make a profit. With increasing competition and their loss of market share, it's hard to believe that they'll soon make a profit, perhaps never. With a stock up 32.59% over the year and no real incentive, the company should not stay in place.
Source of image: Q2 shareholder
Although revenues have increased year by year, they have a cost. As shown by the loss of operation, they are losing at a faster pace than ever before. With margins almost as high as in 2016, Spotify is not exceptional. Considering that Apple Music is only on the rise, with no sign of slowing down, I can only note the losses of Spotify as they try to keep up.
Lack of good luck
Finally, one of the most important points is the absence of Spotify gap. Although this can be discussed with most music streaming apps, Apple Music is doing things to change that. If Apple Music implements Shazam, it's an incredible gap. Unlike Apple Music, Spotify has only clean software that makes their application better than any other. Spotify also has a lower catalog. Some songs will be released on Apple Music before Spotify, which is a big hit for Spotify.
To go even further, Jay Z, a famous rapper, has released his albums from Spotify. Again, it's a big hit for Spotify. With prices equal to those of Apple Music, money is not a factor of attraction, in fact, it is a factor that pushes. I say that because Apple Music offers a discount to students and Spotify does not do it. This attracts a lot more students than Spotify.
GlobalI find it very hard to believe that Spotify will make a profit in the near future. With no gap, growing competition and catastrophic finances, the future of Spotify is bad. If Spotify continues to let Apple Music intimidate and take the place of number 1, Spotify does not seem to be a smart investment. With a disgusting P / E ratio, a growing loss and an EPS that continues to disappoint, the company does not have much to offer.
I've covered a lot of growth stocks that seem overvalued to the shallow eye and have tried to prove that this theory is still wrong with Spotify, it's impossible to do it. Unless the company can once again become the number one streaming service and start making acquisitions that help the company, at the price it is currently and in the current state of affairs from the company, it is a sale.
Disclosure: I / we have no position in the actions mentioned and we do not plan to enter positions in the next 72 hours.
I have written this article myself and it expresses my own opinions. I do not receive compensation for this (other than Seeking Alpha). I have no business relationship with a company whose stock is mentioned in this article.
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