Spotify (SPOT 1.65%) is my top stock to buy in April because it's a clear bargain at its current prices. Here's why.

Global leader

Spotify is the global leader in music and audio streaming with 271 million monthly active users (MAUs), including 124 million Premium subscribers. Those figures grew 31% and 29% in the fourth quarter of last year, respectively. Remarkably, total MAU growth is accelerating -- 31% was the fastest year-over-year growth rate in any quarter last year. Most of this success can be attributed to a superior product, which is made possible by a relentless focus solely on audio streaming and a large R&D budget.

The No. 2 competitor in subscribers is Apple's (AAPL -0.37%) Apple Music, which had "over 60 million" subscribers as of June of last year. Apple has been radio silent on the topic since last summer, which could suggest that it's losing even more ground to Spotify; if it were outgrowing Spotify, the company would be shouting it from the rooftops for marketing purposes at the very least. Apple's silence speaks volumes.

A young woman dancing while listening to music with headphones

Image source: Getty Images.

Counterpoint Research estimates that Spotify and Apple Music ended last year with 35% and 19%, respectively, of the estimated 358 million global streaming audio subscribers. That implies Apple Music had about 68 million subscribers at year-end, suggesting about 10% growth compared to six months earlier, assuming the "over 60 million" it had in June meant 62 million. That compares to Spotify's Premium subscriber growth of 15% over the same period.

Expect Apple to continue to be silent on this topic as long as it continues to lag Spotify. 

Huge opportunities ahead

The 271 million MAUs and 124 million Premium subscribers Spotify has is a huge user base already, but how many people worldwide could potentially pay for streaming music or listen to a free ad-supported audio service?

In the past, Spotify's management has outlined its total addressable market (TAM) as the number of payment-enabled smartphones in the territories where it competes. Management has said there would soon be three billion smartphones users in territories where Spotify operates (or will soon).

We can also look at the user bases of other large technology companies. At the end of last year, 2.26 billion people used at least one of Facebook's services -- Facebook, Instagram, Messenger, or WhatsApp -- every day. And 2.89 billion people used one of those services at least monthly. Clearly, there are a lot of people connected to the internet who are not yet using Spotify or streaming music, many of whom probably will over time.

Spotify also has a huge opportunity in advertising, particularly podcast advertising. The company is already the No. 2 podcasting platform behind Apple, but it has been rapidly gaining market share. Since Apple disdains advertising businesses, Spotify is almost destined to be the largest channel for podcast advertising -- a market that's estimated to grow from $678 million last year to over $1 billion in 2021. That's 54% growth in only two years.

Ok, but why now?

Spotify's stock price has fallen from a year-to-date high of $159 per share in January to just $122 today. That's a 23% decline over the last three months. 

It's hard to attribute that to anything other than the coronavirus outbreak. Some think streaming music usage is down, but the company pointed out the changing mix of usage as more people are housebound. To the extent the business is seeing headwinds from coronavirus, they are unlikely to be material, and they certainly shouldn't be permanent.

While enterprise value-to-revenue is just one valuation tool, at $122 per share, Spotify is trading at 2.7 times trailing revenue and just 2.0 times consensus 2020 revenue. To put that in context, SiriusXM (SIRI -0.23%) acquired Pandora for $3.5 billion last year, which was equivalent to 2.3 times trailing revenue. At the time, Pandora had been seeing a declining user base for the prior four years.

In contrast, Spotify is lighting the world on fire with incredible growth, attractive margin-enhancing initiatives, a fantastic product and R&D-driven culture, and an engaged and impressive founder and CEO in Daniel Ek. Spotify should be worth a far greater multiple of its revenue than the multiple at which Pandora was acquired. 

Even if Spotify is seeing a negative impact from coronavirus, it should be a temporary blip. We'll get past these troubling times thanks to the incredible work of researchers, scientists, doctors, nurses, and others. Over time, coronavirus is unlikely to have any impact on Spotify's business. The fact that investors can buy Spotify shares at a discounted price, comparable to the revenue multiple for which a struggling Pandora was acquired, is too compelling to pass up. That's why Spotify is my top stock to buy in April.