Music streaming and podcast powerhouse Spotify (SPOT) is another name that outperformed in 2020, with pandemic-led tailwinds being reflected in the stock’s price appreciation over the past year (148% gain in the past twelve months).
However, like other COVID-19 “stay-at-home” plays, some may fear this growth story is starting to cool. As a result, Spotify shares have held steady between around $310 and $360 since December.
While this isn’t a cheap stock by any means, SPOT looks attractive at today’s prices. Profitability remains many years off as the company continues to scale up, but if it maintains double-digit growth, it could exceed Wall Street’s muted expectations in 2021.
So, what does that mean for those who haven’t dived into Spotify just yet? The stock could continue to tread water over the near-term, but for those looking to enter a long-term position, now may be the time to do so.
Why Investors Have Been Hitting the Brakes With SPOT Stock
Spotify released results for Q4 2020 (ending Dec. 31) on Feb. 3. Revenues came in at €2,168 billion ($2.61 billion), slightly above analysts’ estimates, while loss per share for the quarter (79 cents) was 17 cents higher than expected.
Premium Revenues (subscriptions) continued to grow at a double-digit pace, but, as has been the case in recent quarters, most of Spotify’s growth came from its Ad-Supported segment (29% year-over-year growth).
Yet, it wasn’t sales nor earnings that investors reacted to the most, but rather, to forward-looking guidance.
Spotify guided for sales of €9.01-€9.41 billion ($10.9 billion-$11.4 billion) in 2021, and with projections falling short of expectations, shares sold off following the earnings release.
Since then, shares have bounced back to pre-earnings levels. However, as investors remain concerned, shares could stay stuck in neutral in the near-term.
Impatient investors might not like this, however, for those looking for long-term exposure to the podcasting and streaming space, now may be the time to buy.
Why? Concerns over slowing growth have caused some to head for the sidelines. That said, with enough in play to accelerate its top line, SPOT has a clear pathway to hit new highs in the coming years.
Plenty of Runway Remains For Spotify
Spotify’s current market capitalization ($69.4 billion) is based on the assumption that it will continue to disrupt the legacy audio media industries (radio). In other words, become for music/podcast streaming what Netflix (NFLX) is for video streaming.
With annual revenue hitting the $10 billion mark, it’s going to be harder for Spotify to sustain prior rates of growth, but the company has several ways of moving the needle in the coming year and beyond.
These include its expansion into new markets like South Korea as well as its continued aggressive push into podcasting. What’s more, the company is planning to increase subscription prices.
All together, this may be enough for results to exceed today’s muted expectations. That’s not to say that shares will surge to the extent we saw in 2020, but stronger-than-expected growth could help keep Spotify shares on an upward trajectory over the next few years.
What Analysts are Saying About SPOT Stock
According to TipRanks, SPOT stock is a Moderate Buy, given that out of 18 Wall Street analysts, 9 rate it a Buy, 6 rate it a Hold, and 3 rate it a Sell.
Additionally, the average analyst price target for Spotify stock comes in at $338.87 per share, implying 7% downside potential from today’s prices. (See Spotify stock analysis on TipRanks)
Bottom Line
Underwhelming guidance might have some concerned that this growth story won’t be growing as fast as it has in previous years. This could affect the share price performance in the near-term.
Yet, with plenty in motion to help the company exceed expectations, long-term appreciation for the stock may still be on the playlist.
Although investors shouldn’t dive into SPOT with the expectation that shares will more than double again this year, this name could reflect a solid opportunity for gradual, consistent gains over the long-term.
Disclosure: Thomas Niel held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.