Investor sentiment has cratered of late, and you don't have to look far to see why. The Fed has decided to raise interest rates in order to tamp down inflation, and economic impacts linked to the war between Russia and Ukraine continue to adversely affect businesses globally. Technology stocks have been the most vulnerable as investors head for the exits and seek protection in value-oriented companies and safer assets.
Year to date, the Nasdaq Composite has plunged 28%, with no signs of turning the corner anytime soon. But with tech stocks down significantly from all-time highs, investors are now left with some promising buying opportunities -- at least the smart money thinks so. The CEO and co-founder of Spotify Technology (SPOT 2.77%), Daniel Ek, bought $50 million worth of shares in early May, asserting to investors that the company's "best days are ahead." Serving as the frontrunner in a massive secular growth market, Ek clearly believes that his company's growth story is far from over.
With the music streaming leader down 55% since the start of the year, should investors hop on board right now?
Image source: Getty Images.
A resilient Q1
Spotify's performance to kick off 2022 surely isn't the reason for its ongoing share price collapse. Despite its withdrawal from Russia, the company finished its first quarter in line with or ahead of its guidance for all key metrics. Total sales climbed 24% year over year to 2.66 billion euros, and diluted earnings per share finished in the green at 0.21 euro, a notable jump from its negative 0.25 euro in the same quarter a year ago.
Total monthly active users (MAUs) rose 19% to 422 million, and premium subscribers ascended 15% to 182 million. For the full fiscal year 2022, management expects total MAUs and premium subscribers to conclude at 428 million and 187 million, respectively. Investors should be very content with Spotify's Q1 outing after witnessing the way many tech companies have performed recently.
It doesn't look like the company's growth story is over yet, either -- the global music streaming market is projected to generate $103 billion in annual revenue by 2030, indicating a compound annual growth rate (CAGR) of 15% from 2021. Today, Spotify reigns over nearly one-third of the global music streaming industry, boasting a market share of 31%. This is more than double the share of Apple Music (AAPL 0.52%), which currently sits as the runner-up in the market.
If Spotify can maintain a quarter of the global market by 2030, it would generate annual sales of $25.77 billion, representing a 134% increase from fiscal 2021 levels. And with 2.72 billion euros in cash and cash equivalents, which is greater than its total long-term debt, the music streaming juggernaut has positioned itself well for continued growth in the years to follow.
Not to mention, the stock is currently trading at an all-time low valuation. Spotify pegs a price-to-sales multiple below 2 at the moment, signaling to investors that now may be the optimal time to buy shares. While growth isn't what it used to be for the music streaming leader, it's hard to justify the stock's rock-bottom trading levels today, especially when taking into account the improvements it has made on the business front.
SPOT PS Ratio data by YCharts.
Spotify sure is tempting today
While it's important to always conduct your own due diligence, there is something to be said about a CEO and founder purchasing $50 million worth of a company's stock. Insiders may sell shares for several reasons, but they typically only buy for one: They think the stock is undervalued and will move up in the future. Given Spotify's proven resiliency in Q1 and superior market positioning coupled with its record-low valuation, it wouldn't be unwise to consider buying the stock at existing levels.
