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Meta Platforms, Inc., 28.01.2022

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Spotify: leader in the music streaming industry

Spotify is a Swedish music streaming service presented in more than 184 countries. The service is an industry leader and [occupies 32% of the market as of 2021](https://www.statista.com/statistics/653926/music-streaming-service-subscriber-share/), twice ahead of its closest competitor Apple Music. The company uses a freemium business model, offering a free version with restrictions. Thus, the revenue structure is divided into two segments: premium subscription and advertising. ### Industry Stock prices of music industry companies in 2020 grew stronger than the S&P 500. The development of technology has made access to music easy and convenient, so that the number of users continues to actively increase. However, since Q1 2021, the index began to decline sharply. Among the reasons may be the dependence of the industry on the dynamics of technology companies in general or increased competition. Therefore, the prospects for the industry are ambiguous. For example, [according to the forecasts of Saxo Bank](https://www.home.saxo/content/articles/outrageous-predictions/spotify-disrupted-due-to-nft-based-digital-rights-platform-02122021), music NFT services will reduce the share of streaming services, since they allow artists to receive money without intermediaries. ### Financial performance review The stock showed a significant increase in 2020, but now there is a correction. It can also be associated with active investment in podcasts, which is a driver for long-term development, but has a negative impact on profitability. However, the Q3 2021 report showed excellent growth rates in revenue (+27%), monthly active users (+19%) and premium users (+19%). Spotify's total debt has increased significantly in Q1 2021. Despite this, the company is not in a hurry to spend cash. She's probably holding them for new acquisitions. Spotify does not have a net profit and does not pay dividends, which is typical for tech companies. ### Comparison with competitors Spotify does not have a P/E indicator, because the company is unprofitable. P/S at Spotify on a par with Warner Music and Tencent, but Spotify's revenue growth rate is higher. However, Warner Music has been on the market longer and pays dividends, which may justify an equal evaluation. ### Drivers of growth 🟢 [Spotify Announces Stock Repurchase Program](https://investors.spotify.com/financials/press-release-details/2021/Spotify-Announces-Stock-Repurchase-Program-Up-to-1.0-Billion/default.aspx), Up to $1.0 Billion; 🟢 New features, such as creating a shared playlist with friends, allow you to improve customer retention and life value; 🟢 Partnerships (Delta Airlines, Google, Tinder, Netflix). For example, users can control music in Spotify on Google's Wear OS watch; 🟢 New types of content, such as podcasts and audiobooks. [By 2024, PwC expects](https://www.pwc.com/gx/en/entertainment-media/outlook-2020/perspectives.pdf) the number of monthly podcast listeners worldwide to exceed 1.5 billion. ### Risks 🔴 [According to the research](https://www.newconstructs.com/it-sounds-like-this-market-leader-is-in-trouble/), the growth rate of premium subscribers fell from 73% in Q1 2017 to 28% in Q2 2021. Further decline may significantly affect the company, because the premium subscription segment accounts for 87% of revenue; 🔴 The company depends on Apple's direct competitor, through whose platform the Spotify app is downloaded; 🔴 Apple, Google, Amazon, unlike Spotify, are able to provide seamless integration between devices, such as smart speakers and watches. ### Summary Spotify has a good reputation and a large user base, which increases brand loyalty and increases the company's chances of strengthening its position in the industry. However, the growth rate of paid subscribers is decreasing, so the company is intensively diversifying its offer and expanding through new acquisitions.

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