SPOT Stock: Is Spotify on the Verge of a Massive Breakout?

SPOT Stock Prediction

It’s no secret that tech stocks haven’t exactly been blowing people away in recent years. Initial public offerings have been largely disappointing, many powerhouse tech stocks have suffered setbacks, and other emergent industries like pot have taken some of the wind out of tech’s sails.

One tech IPO that was a little underwhelming was that of Spotify Technology SA (NYSE:SPOT). Despite making strong gains early on, SPOT stock tumbled to finish 2018—but, due to an interesting business strategy, many are bullish again on the stock, and I believe it has the potential to be dominant in the second half of 2019.

First, let’s consider Spotify stock’s run so far.

Chart courtesy of StockCharts.com

Having gone public in early 2018, the company has since only seen about an eight percent gain. And, as can be noted above, it hasn’t been smooth sailing for the company by any means.

Despite making strong gains at the start, the company faltered in late 2018—only to rebound strongly in 2019.

Chart courtesy of StockCharts.com

Up 26%, does the media streaming service have what it takes to keep those gains coming?

I believe it does. Due to its high price at the launch of its IPO, SPOT stock is not going to be seeing exponential growth anytime soon. But we could see the company easily double its growth in 2019, hitting 50% gains by the end of the year.

One of the major reasons that I and so many other analysts are supportive of  Spotify stock has to do with the company’s new plan regarding podcasts.

Spotify said in its earnings report released in February that it is looking to spend $400.0 million to $500.0 million on podcast acquisitions in 2019. (Source: “Spotify Technology S.A. Announces Financial Results for Fourth Quarter 2018,” Spotify Technology, February 6, 2019.)

That seems like a wise decision, especially considering how strong podcast advertising revenue has been of late: it increased by 54% last year to $479.0 million, and it could grow to as much as $1.0 billion by 2021, according a report by Guggenheim Partners.  (Source: “Spotify is spending hundreds of millions to become a major podcasting player — and Wall Street sees massive potential for the stock (SPOT),” Business Insider, June 25, 2019.)

If Spotify can capture a quarter of that market, it would earn an extra $250.0 million in annual revenue, the firm estimated.

“This is a very, very early market that we’re seeing. And our view obviously is that while [people] are starting to flock to listen to podcasts, there’s still tremendous growth both in the U.S. and internationally on the demand side,” said Daniel Ek, the chief executive officer and chairman of Spotify, in the company’s earnings call for Q1 2019. (Source: Ibid.)

Several of Spotify Technology’s deals have analysts excited, specifically content agreements with people like former president Barack Obama (obviously a very big win for its podcasting network). The company is also innovating in terms of delivery (the “Your Daily Drive” playlist mixes news podcasts with music, for instance).

The company also recently released a feature that allows advertisers to target people based on the types of podcasts they’re listening to, another helpful boon to the company.

Spotify continues to grow in popularity, becoming the ninth-most downloaded app during the second quarter of 2019. That marked its highest quarterly ranking in more than two years, according to data compiled by App Annie. (Source: Ibid.)

Overall, things are looking up for SPOT stock in 2019 and beyond.

Analyst Take

Spotify Technology has recently made a number of strong moves that are setting it up for success in the future.

Keep an eye on Spotify stock’s growth moving forward as it continues to branch out into the lucrative podcast market.