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Is Now the Right Time to Buy Spotify?

By Ryan Henderson - Apr 26, 2021 at 12:22PM

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Beaten down on recent news, this might be the right time to bet on the audio giant.

The world's largest audio streaming platform, Spotify (SPOT -1.87%), saw its stock price decline by more than 10% at one point in the last week amid announcements for new audio features from Apple (AAPL 0.96%) and Facebook (META 0.94%). Since some of these new products are targeted at the podcasting space, investors seem to be worried that the potential added competition could hurt Spotify.

But before Spotify shareholders rush to the exits, it's worth examining whether this is truly important news, or simply investing noise. Let's take a closer look at what was announced and whether it might actually have an effect.

Spotify streamed on different devices

Image source: Spotify.

Impending competition

Before diving into why Spotify might be well-positioned to deal with these competitive threats, it's important to understand what the threats actually are. Earlier this week, Facebook announced that it will be introducing several new audio features to its platform. Some of these include short sound bites to share with friends, podcasts, and a live audio product for open discussions.

Although most of these are designed to be social features, Facebook's podcasting product would be a direct competitor to Spotify. With 2.8 billion total monthly active users, it's understandable that investors would fret at the idea of Facebook joining the audio space. But there was more seemingly bad news that followed. 

A few days after the Facebook news dropped, Apple had its spring event, where it announced an array of new products. Alongside new iterations of the iMac and iPad, the company announced that it's revamping its podcast app for the first time in several years and even building a podcast subscription. Although Apple didn't mention any details about possible pricing, the subscription would unlock additional content like ad-free shows and the ability for listeners to support their favorite podcasts financially. 

The updated version would allow podcast creators to set their own pricing and even dictate what additional content their listeners get access to. While this subscription would unlock some new monetization strategies for creators within the Apple Podcasts app, participating podcasts would not have to be exclusive on Apple.  

What does this mean for Spotify?

Though it's clear that competition in the audio space is heating up, some of the announcements will ultimately benefit Spotify as well. Each of these new announcements has the same end goal: boosting the number of listeners on the respective platforms. Regardless of where the end-user listens, Spotify still owns the majority of podcast distribution thanks to its acquisitions of podcasting specialists Anchor and Megaphone.

According to Spotify, Anchor accounts for more than 70% of new podcasts on its platform. While it's impossible to tell what that data looks like on other platforms, Anchor distributes podcasts everywhere, so it's probably fair to assume the data is similar across most apps. So while redirecting the listeners to other apps could potentially hurt Spotify's subscription revenue, the revenue it generates from Anchor and Megaphone would likely grow as more and more advertisers seek the larger podcasting audience. 

Before Apple's announcement, eMarketer reported that Spotify was set to surpass Apple podcast listenership for the first time ever in 2021, and it's likely safe to assume that projection still stands. Spotify has grown its position in the podcasting market not by acquiring existing listeners, but by creating new podcast listeners. A year ago, only 16% of Spotify's total monthly active users engaged with podcast content, and today that number stands at 25%. While Apple's and Facebook's new announcements might garner some attention, it's hard to see Spotify's growth within its existing user base stopping anytime soon.

Is this the time to buy? 

Ever since its inception in 2006, Spotify has endured bumps in the road and heavy competition, and all along the way, it continued to grow its user base. Though these recent announcements could mean increased competition, Spotify has proved itself to be the dominant platform in audio with more than 345 million total monthly active users. 

With its stock now off more than 20% from its highs and trading at its lowest revenue multiple in the last nine months, this strikes me as a good opportunity for long-term investors to add shares. 

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Stocks Mentioned

Spotify Stock Quote
$102.87 (-1.87%) $-1.96
Apple Inc. Stock Quote
Apple Inc.
$142.92 (0.96%) $1.36
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$169.77 (0.94%) $1.58

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