Spotify shares: Price analysis before buying or selling

Can I receive dividends when I buy Spotify shares?

No

ISIN code: LU1778762911

Ticker: NYSE: SPOT

Index or market: NYSE

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Elements to consider before selling or buying Spotify shares

Analysis N°1

The evolution of the group's results. You can monitor these quarterly results, paying particular attention to the level of losses and possible future profits because Spotify is not yet cost-effective.

Analysis N°2

The competition in this sector shouldn't be neglected since the players are growing in numbers and are taking more and more market shares every day.

Analysis N°3

You should also monitor Spotify's efforts to offer more innovative services and stand out from its competitors by attracting new users.

Analysis N°4

It also goes without saying that all the partnerships set up by the group which allow it to gain new paying subscribers are excellent indicators.

Analysis N°5

Finally, you should monitor all the investments made by the company, especially after its IPO.

Analysis before buying or selling Spotify shares

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General presentation of Spotify

The Spotify group is a Swedish company specializing in music streaming which operates software and a website. It offers an instant music listening service with a varied and very important catalogue of artists and albums and certain specific functionalities such as the possibility to listen to music offline or create playlists. Spotify also allows users to buy songs or albums directly through a partner merchant website.

The Spotify group has set up a business model which mainly uses advertising revenue. In its free version, advertising spots are broadcast at regular intervals while the user listens to music. Spotify also offers a paid version of its software, without advertising this time and with unlimited listening even offline for € 9.99 per month. It also offers preferential rates for families or for students who can take advantage of the service at a lower cost. Spotify also bases its marketing strategy on various promotional offers throughout the year which allow it to attract new users by letting them discover the software for a small fee during the first months.

The Spotify group counts on contracts signed with major music labels in order to offer its users countless tracks.

The music player marketed by Spotify online has evolved considerably since its launch in 2006. It owes its success in particular to the various partnerships signed with major music labels, as it is currently supported by several major music companies including EMI, Warner Music, Sony and Universal. This allows it to offer its users a very large music library and a search function to find the titles that interest them.

The software uses a free codec called Ogg Vorbis to compress the data and then provides a stand-alone client software that allows users to access its music database.

Spotify software is compatible with various operating systems including Linux, Mac OS X, Windows, Android, IOS and Symbian as it works on computers, tablets and mobiles.

Spotify currently offers its music streaming software in more than 178 markets worldwide and is one of the industry leaders in music streaming and downloading with more than 345 million active users, including more than 155 million paying subscribers. Recently, in 2021, the group's offering was expanded to include a children's version with parental controls.

Photo credits: ©daviles/123RF.COM

The major competitors of Spotify

We would now like to take a look at the environment in which the Spotify group operates and more specifically its competitive environment. Indeed, this company is not the only one on this market and faces significant competition from a few major players including:

Amazon Music

This is a music streaming platform as well as an online music shop operated by the giant Amazon which was launched in September 2007 and in 2008 became the very first online music shop to sell music from major music labels EMI, Universal Music, Warner Music and Sony BMG without digital rights management. However, the licensing agreements signed with the record companies limit the countries in which the music can be marketed.

Deezer

This French digital distribution platform dedicated to streaming music is also a serious competitor to Spotify. It offers a website and mobile applications and was launched in 2007. On the website, a free package allows unlimited listening with ads on all media as well as a subscription for unlimited listening on mobile without ads. The company went public in 2015.

iTunes Store

Formerly known as the iTunes Music Store, it is an online service for selling music and other content from Apple and was established in 2003. The service is also accessible through the iTunes software from version 4, is available on MacOS and Windows and can run on GNU and Linux through emulation.

SoundCloud

Although offering a somewhat different service, SoundCloud is also a serious competitor to Spotify. It is an online audio distribution platform where users can collaborate, promote and distribute their music projects. The site has over 40 million subscribers and 200 million unique visitors per month.

YouTube Music

Finally, we will also follow this audio streaming service platform developed by the Google subsidiary group and which offers a customised interface for the music streaming service that allows users to browse music videos on YouTube according to genres, playlists and recommendations. An ad-free playback tier, audio-only background playback and song downloads for offline playback is also offered. This service eventually replaced Google Play Music as Google's main service for streaming and purchasing music.

The major partners of Spotify

Tinder

In 2016, Spotify set up a unique marketing partnership with the Tinder dating site and application. Thanks to this partnership, Tinder users can now publish a musical title on their dating profile and also listen to and share their favourite songs directly through Tinder and even see the profiles of singles with the same musical tastes.

Netflix

In 2017, the American video streaming giant Netflix also partnered with Spotify to create an interactive playlist offering users to know what they have in common with the characters in the Stranger Things series. A link set up by Spotify allows users to get the result of this test according to the tracks most frequently listened to on its software.

Buzzfeed

In 2018 and just before its IPO, Spotify decided to diversify its streaming offer by offering information content thanks to a partnership set up with different publishers. The first service of its kind called Spotlight is a podcast of daily sports and cultural news resulting from a partnership with BuzzFeed. This service, initially available in the USA, could arrive in Europe soon.

Atol

Finally, also at the beginning of 2018, Spotify tried to seduce customers in their 40s by setting up a strategic partnership with Atol opticians. When a track from the 70s or 80s is listened to on a Spotify playlist, an add pops up inviting users to go to one of the opticians on the network to have their eyesight tested.

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The factors in favour of a rise in the Spotify share price:

Firstly, the Spotify group enjoys an interesting position in the streaming music market as it is both the pioneer of the industry and the world leader in terms of number of users. This gives Spotify a certain amount of consumer confidence.

Spotify also appeals to both paying and non-paying users because it is easy to use compared to some of its competitors. In addition to the Sartphone application and software for PCs, tablets and other devices, Spotify is web-based and has a user-friendly interface that is both fun and easy to use. Being able to listen to music free of charge and without any subscription is also a real plus for the company, which is then paid for out of the advertising space sold.

Spotify has also understood that using social networks to get known is a good strategy. Spotify's playlists give the platform a social aspect that allows it to both retain existing users and gain new ones.

Spotify isn't going to stop at the services it currently offers and, following the recent launch of a streaming news service, is looking into the possibility of streaming live content and is also expanding its video-on-demand service.

Finally, as far as Spotify's strengths are concerned, it should also be noted that its seniority and experience in this field make it a trusted intermediary for artists and production houses. The group is thus able to negotiate prices with these artists and gain the confidence of advertisers with regard to its advertising space service.

The factors in favour of a drop in the Spotify share price:

Firstly, Spotify is notorious for paying artists at low prices because its basic service is free, which could be a problem in the long run if its competitors offer higher remuneration.

Secondly, although Spotify's library is very comprehensive, it remains limited due to artists splitting up their catalogues.

It should also be noted that Spotify's business model of pushing users to take out a subscription by reducing access to the free service may lead to a slowdown in the growth of users in the coming years.

Of course, fierce competition from the industry and especially from its growing competitors such as Apple, Amazon and Google could weigh on Spotify's reputation and cause it to lose its number one position in the industry, especially as these companies also enjoy strong popularity in the eyes of the public.

The rise in illegal downloads, despite the procedures put in place to curb this phenomenon, is also a major handicap for companies in this sector who could see their subscriptions decline over time.

Finally, it should be noted that Spotify is not yet making a profit. Reducing its losses and generating new profits is therefore one of the major challenges for the coming years.

To sum up, it's interesting to compare the strengths and weaknesses of the Spotify group in order to determine the chances of growth for the group and therefore for its stock on the stock market.

The information supplied here is only for indicative purposes and should not be used without the completion of a comprehensive and complete fundamental analysis of this asset notably taking into account exterior data, future publications and announcements and all fundamental events and news that could influence the strengths and weaknesses or make them more or less significant. This information does not in any way constitute recommendations relating to the completion of transactions or a solicitation to buy or sell an asset.

Frequently Asked Questions

How was Spotify created and in what year?

It was in 2006 that the Spotify AB was born with the creation of the software of the same name. This Swedish-based company was founded by Daniel Ek who was the former technical director of Stardoll along with Martin Lotentzon who is the co-founder of TradeDoubler. The head office of the company is now based in Luxembourg and its research and development centre is in Stockholm. It wasn't until 2008, however, that the Spotify software was released for public access.

How are the financial results of the Spotify group evolving?

The evolution of the financial results of the Spotify group has been rather positive in recent years. If we look at recent financial years, there is an increase in turnover however a decrease in net income. In fact, in 2019, Spotify achieved a turnover of 6.764 billion euros, an increase of 28.62% compared to 2018. But with regards to its net profit, it was -186 million euros in 2019, i.e. 58.76% of additional deficit compared to 2018.

Is it a good time to buy Spotify shares?

There isn't really a great time to buy shares in a company like Spotify. You must make sure that its chances of rising are particularly high in fact before buying these securities. In order to do so, you'll need to use both technical and fundamental analysis and compare the signals obtained.

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Analysis before buying or selling Spotify shares