Please ensure Javascript is enabled for purposes of website accessibility

Why Netflix's Demand is Surging More Than Spotify's

By Andrew Tseng - Apr 3, 2020 at 8:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

But Spotify is probably doing just fine too.

These days Netflix (NFLX -0.57%) is seeing tremendous usage because the coronavirus outbreak is keeping so many people at home. It's reasonable to think all sorts of streaming entertainment would be benefiting in similar ways, but it's less clear that streaming music and audio from Spotify (SPOT -3.49%) are seeing the same benefit.

Netflix demand is through the roof

We already know Netflix is the perfect coronavirus stock. Europeans are streaming so much Netflix these days that the company agreed to slightly reduce the quality of its streaming in order to reduce internet congestion. On March 19, news broke that founder and CEO Reed Hastings spoke with European Union Commissioner Thierry Breton and agreed to reduce the bit rates of Netflix's streams in Europe for the following 30 days. This change is intended to reduce Netflix's traffic on European networks by 25% while still maintaining a high quality stream for its customers. 

On March 24, executives from AT&T told investors in a business update that it was seeing all-time high Netflix usage on its network. "We saw a dip in traffic [on March 23] from Netflix after all-time highs on Friday/Saturday," the company said.

A man in a chair listening to music on headphones with his eyes closed.

Image source: Getty Images.

Then on March 25, Netflix's service was down for about an hour in the morning for certain customers in the U.S. and Europe. The issue was quickly fixed, but it seems likely that it had to do with the massive customer usage the company has been seeing lately.

What about Spotify?

It would be reasonable to think the same factors driving so much demand for Netflix would be driving similar demand for streaming music and audio services like Spotify. But the use cases for Netflix are different than for Spotify. With Netflix, a lot of usage happens at home on television screens.

With Spotify, the usage seems more diverse. Some people listen to Spotify during their commutes. Others listen as background music while at work, while working out at the gym, or at home on smart speakers. Commuting is down significantly right now because so many people are working from home, or unfortunately, have been laid off. Gym attendance is also down because of efforts to practice social distancing. 

At the same time, those who are working from home are probably more likely to listen to background music than they were at the office. Doing so at the office might be frowned upon or disruptive or not practical, while working from home has fewer of those limitations. 

According to data compiled by Quartz, Italy was streaming Spotify's top 200 songs about 18.3 million times per day in February. But since the beginning of that country's national quarantine on March 9, Italian Spotify users streamed the top 200 songs no more than 14.4 million times per day. At face value, that would suggest that staying housebound decreases Spotify usage substantially.

However, there may be other explanations that explain that data point.  It could be that Spotify users are streaming other things beside the top 200 songs. Their listening choices may have shifted to older music or children-oriented music since so many are home with their kids. Podcasts or other programming may also be part of this usage change. 

Spotify itself put out a press release outlining the major changes the company is seeing in user listening habits. It confirmed that there has been a mix shift toward different kinds of listening, including news podcasts, children's content, more "chill" music while at home, and more podcasts in the health, fitness, and lifestyle genres. The company did not indicate whether overall streaming had increased or decreased, or whether the last several weeks have been good or bad for business, but the company's focus on the mix shift of listening is notable. It's possible it intended to counter the notion that overall streaming on Spotify was declining based solely on looking at the number of streams of the top 200 songs. 

So what

While Spotify is seeing major changes in the listening habits of its users, it's far from clear that fewer people are engaging with Spotify. It could even be that people are listening to Spotify more. It's yet another leap to conclude that any temporary decline in engagement would result in subscriber cancellations. For investors, that's what matters most.

But at only $9.99 per month for the standard individual plan, which includes access to over 50 million songs on-demand and ad-free, Spotify is an affordable service that its subscribers would be unlikely to cancel even if they are using it slightly less while at home. In addition, music can be very therapeutic during stressful times.

While Spotify's usage is probably not surging as much as Netflix's usage, Spotify is most likely doing fine and only seeing a listening mix shift rather than an unusual decline. With Spotify's stock down about 21% since its February peak, investors should consider that an opportunity.

 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Spotify Stock Quote
Spotify
SPOT
$94.55 (-3.49%) $-3.42
Netflix, Inc. Stock Quote
Netflix, Inc.
NFLX
$177.34 (-0.57%) $-1.02
AT&T Inc. Stock Quote
AT&T Inc.
T
$21.01 (0.29%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
317%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.