Like many growth stocks this year, shares of Spotify Technology (SPOT 0.74%) have been crushed. The stock is down 60% from its all-time high. At the current quote of about $122, the shares are hovering just above the 52-week low of $118.20.
But Spotify is the leading audio streaming service, and it continues to grow. In the fourth quarter, the company reported year-over-year revenue growth of 24% as monthly active users surpassed 400 million. All said, the stock's performance doesn't reflect Spotify's underlying business performance, which means the company's intrinsic value might be much higher than the current share price.
And there's good reason to believe Spotify can continue adding users for many years.
Most people in the U.S. don't pay for a Spotify subscription
Spotify ended 2021 with 406 million monthly active users (MAUs). But as Spotify grows larger, it is getting more difficult to keep growing at the high rates the company was posting before the pandemic. In Q4 2019, Spotify reported MAU growth of 31% year over year. In Q4 2021, that growth slowed to just 18%.
That result still looks impressive when compared to Netflix. The leading video streamer ended Q4 with 222 million paying subscribers -- more than Spotify's premium subscriber count of 180 million -- but Spotify grew its premium subscriber base 16% year over year during the quarter compared to Netflix's growth of 9%.
Spotify's stock price has collapsed largely over decelerating growth, but the company can keep expanding its reach for many more years. Its service still has a relatively low penetration of paying subscribers in the U.S. -- one of its largest markets.
Based on Statista's Global Consumer Survey of between 2,000 to 7,000 respondents per country, nearly 50% of respondents in Sweden -- where Spotify was founded -- has a paid Spotify subscription. That is more than double its penetration in the U.S. where 20% of respondents reported having a paid subscription.
Obviously, many people are going to opt for the free ad-supported plan, but the chart reveals Spotify has a lot of headroom to keep growing its premium user base over time. In fact, on a per-capita basis, people are spending less than half on music than what they were spending in 1999, but that figure has started to increase in recent years.
Spotify's opportunity in the creator economy
Investors might be severely underestimating Spotify's ability to capture more growth in the creator economy, specifically with podcasts. CEO Daniel Ek called the creator economy "one of the biggest opportunities on the internet," and Spotify's investments in podcasts put it in a great position to capitalize on this burgeoning market.
Spotify currently supports 11 million creators, but management sees the potential to add as many as 50 million over time. These creators bring with them a countless number of followers, and Spotify has already spent years investing in the resources, software, and tools to help these content creators grow their businesses.
Management believes Spotify can eventually grow to one billion users. That seems doable given its relatively low penetration rate in key markets and the potential to serve more podcasters and their listeners. With Spotify still delivering double-digit growth despite already having over 400 million active users, it is clearly on its way to achieving its long-term goal. That's why the stock is worth considering, while it trades near its 52-week low.