Spotify Technology (SPOT), mcap=$19.3bn, price $100 vs $76

SPOT pitch:
– The #1 music asset for only $12bn.
– Spotify is now at an inflection point with the acceleration of new product/feature adoption and with margins set to aggressively inflect upwards.
– The negative margins in 2022 were driven by short-term headwinds and a year of heavy Podcast investments.
– Spotify has more leverage over music labels than most people think.
– Streaming is now 60% of the major label’s total revenues and SPOT is 2/3rds of that.
– Additionally SPOT can provide record labels with the broadest and most granular amount of data on users’ listening behavior, genre trends, or any undiscovered and upcoming artists.
– There is still a good amount of negative sentiment on the stock and consensus estimates are far too low.
– The market is wrong in believing that Spotify is at the mercy of major music labels and does not have a viable business model.

SPOT valuation:
– You are paying $28 for each Spotify MAU that generates ~$6.6 GP/User per year.
– SPOT trades below 6x 2025 EBITDA target of $2.1bn (vs $0.6bn consensus).
– At 20x EBITDA for 2025, the company is worth $241/share.

Exp. gain: +218% to $241/share.

Full write-up (free guest account required):