Spotify’s (NYSE: SPOT) Expansion Shows No Signs of Slowing Down

Spotify NYSE: SPOT is sometimes compared to Netflix NASDAQ: NFLX. Though the companies deal in different mediums – Spotify in audio streaming and Netflix in video streaming – the market dynamics are similar.

Netflix’s market cap and revenue are both much higher than Spotify’s right now, but that may not always be the case. It seems like Spotify has studied Netflix’s successes and the audio streaming giant has apparently realized two things:

1. Content is king.
2. Local language content is necessary for a successful global expansion.

Last week’s news offered further proof that Spotify’s focus is on those things.

Spotify Signs Prince Harry and Meghan Markle

Prince Harry and Meghan Markle made headlines earlier this year when they announced they were leaving the royal family. They clearly didn’t make the decision in order to stay out of the public eye though; last week, the two of them signed an exclusive deal to become podcasters on Spotify’s platform.

This signing just goes to show the power of podcasting. Prince Harry and Markle have been magnets for media coverage for years, with much of it being over the top. By starting their own podcast, they can set the record straight.

For Spotify, it’s yet another high profile signing for a company that has made them feel routine. Spotify signaled it was serious about podcasting earlier this year when it signed Joe Rogan, DC Comics, and Kim Kardashian West in a flurry.

Spotify is, however, becoming similar to Netflix in a way that it would prefer not to: the audio streaming company’s content costs are quickly increasing. The financial details of this latest deal were not disclosed, but it certainly wasn’t cheap. The Joe Rogan deal, for example, came in at $100 million. Obviously, you’d prefer to see lower content costs, but the good news is that Spotify’s user base is increasing at a fast enough rate to more than cover those costs. More on that in a bit.

Spotify is Launching in South Korea

K-Pop, a music genre that originated in South Korea, has turned into a global sensation. Spotify started offering K-Pop tracks in 2014. The numbers over that six-year period are staggering:

• The share of listening to K-Pop is up 2,000% since 2014.
• Users have streamed more than 180 billion minutes of K-Pop.
• K-Pop tracks have been added to more than 120 million Spotify playlists.

Amid this rapid growth, Spotify surprisingly wasn’t offering its service in the South Korean market. Last week, Spotify announced plans to change that: it will launch in South Korea in the first half of 2021.

The move itself can provide a nice boost to Spotify’s top line as South Korea is the sixth-largest music market in the world. But the move also brings attention to the audio streamer’s global expansion. Spotify’s service is currently available in 92 countries, including most of the major markets. This news shows that Spotify is intent on maximizing its growth potential through a combination of expanding into new countries and local language content.

User Growth is Coming in at the High End

Spotify released its Q3 earnings in late October, and it turns out that its Q3 and Q4 user estimates were a bit low:

• Q3 actuals were 144 million paid subscribers and 320 million monthly active users (MAUs). Estimates called for 140-144 million paid subs and 312-317 million MAUs.
• Q4 estimates were revised to 150-154 million paid subscribers and 340-345 million MAUs. Previous estimates were for 146-153 million paid subs and 328-348 million MAUs.

Strong user growth is vital for Spotify. It not only drives top line growth, but also allows Spotify to confidently invest in content.

Upgrades Could be Coming

Spotify has a consensus price target of just $244.70, nearly $100 lower than its current price of $336.10. At first glance, this seems concerning. But it’s actually the opposite. Just 5 of the 28 ratings are sells, so it’s clear that the analysts are just a little behind. Spotify is a prime candidate to receive a flood of raised price targets sometime in the near future – which could give shares a lift.

How to Play Spotify

 After getting turned back just shy of $300 a share three times between July and October, Spotify finally broke through that level in early December.

SPOT shares have bounced between around $320 and $340 over the past couple of weeks, currently trading on the higher end of that range.

Any short-term weakness in Spotify is a potential buying opportunity, as this is an excellent company in a long-term uptrend.