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Why Spotify Stock Dropped 14% in September

By John Ballard – Oct 5, 2020 at 1:36PM

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Apple is trying to undercut Spotify on pricing to win the music-streaming war.

What happened

Shares of Spotify Technology (SPOT 1.08%) lost 14% in value last month, according to data provided by S&P Global Market Intelligence. Investors became concerned when word got out that Apple (AAPL -0.34%) was going to bundle some of its most popular services, including Apple Music, together under one payment plan called Apple One. 

Analysts believe it will help Apple further grow its services business, which could increase consumer adoption of Apple Music, while taking market share away from Spotify.   

A girl wearing headphones while relaxing on a couch.

Image source: Getty Images.

So what

It's estimated that Apple Music had 68 million subscribers at the end of 2019. That's way behind Spotify, which had 138 million paying subscribers at the end of the second quarter, representing an increase of 27% year over year. 

Apple One gives Apple a significant advantage on pricing. Previously, both music-streaming services were priced at $9.99 per month for individual plans and $14.99 for family plans. But Apple One is undercutting Spotify's pricing by bundling Apple Music, Apple TV+, Apple Arcade, and 50GB of iCloud storage for just $14.95 per month for the basic individual plan. 

Now what

Apple One tilts the value proposition in its favor, and Spotify is concerned. Spotify released a statement, calling Apple's new subscription plan "unfair," since it allows Apple to use its dominant position to "disadvantage competitors and deprive consumers by favoring its own services." 

Apple responded, stating,

After using the App Store for years to dramatically grow their business, Spotify seeks to keep all the benefits of the App Store ecosystem -- including the substantial revenue that they draw from the App Store's customers -- without making any contributions to that marketplace.  

Spotify still has an advantage of offering its service across a range of devices, whereas Apple Music is tied to Apple's ecosystem of devices.  Spotify is also investing in exclusive podcast content to expand more broadly into audio streaming. 

While Spotify has plenty going for it that distinguishes its service, investors will want to watch the adoption of Apple One and how that impacts Spotify's growth in the quarters ahead.

John Ballard owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Spotify Technology. The Motley Fool has a disclosure policy.

Stocks Mentioned

Spotify Technology Stock Quote
Spotify Technology
SPOT
$80.31 (1.08%) $0.86
Apple Stock Quote
Apple
AAPL
$147.81 (-0.34%) $0.50

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