Considering the recent state of disappointing initial public offerings, Spotify Technology (NYSE:SPOT) had its back against the wall. Still, Spotify stock got off to a brilliant start in its first five months. By the end of August, SPOT had gained almost 44% against its IPO price.

However, things quickly went sour from there.

Despite strong enthusiasm among some Wall Street analysts for the company’s dominance in the music-streaming game, the consensus disagreed. Moreover, SPOT stock fell victim to broader market weaknesses. Investors quickly turned into risk-off mode, which unsettled nearly every market segment. Spotify absorbed the brunt of the damage, dropping over 25% between October and the end of November.

Now, the consensus has decidedly gone negative. But with so many other companies suffering the same fate, is there a contrarian opportunity in Spotify stock? Let’s examine some of the top pros and cons for the music-streaming firm, beginning with the positives:

Spotify Stock Is Heavily Discounted

This is an obvious point but it’s worth articulating at this juncture: if you missed the boat on its IPO, you have a time-capsule opportunity with Spotify stock.

That’s because at the time of writing, SPOT’s price of just above $128 is slightly below its introductory offer. Against Spotify’s peak closing price, the bears have eliminated nearly 35% of the company’s equity value.

Not only that, shares appear to have stabilized around the low-$130 range. Of course, that’s no guarantee that SPOT will move higher. However, I can’t help but notice that the major indices have also seemingly found a bottom.

Perhaps the worst of the broader controversies and headwinds have been baked in. If so, the markets could move higher, taking Spotify stock along for the ride.

Spotify Is the Clear Leader in Music Streaming

Undeniably, one of the early bull cases for SPOT stock was the underlying company’s position in music streaming. Currently, no one in the world has the subscriber base or engagement level that Spotify levers.

Its statistics are quite impressive. SPOT boasts 180 million monthly active users (MAUs), 83 million of which are paying subscribers. That translates to a 46% premium-service conversion rate. To put this staggering conversion into perspective, Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) YouTube platform has 1.9 billion MAUs. However, its premium YouTube TV subs tally only 300,000.

To bring in more context, Apple (NASDAQ:AAPL) is the world’s second-largest music streamer. However, the gap is considerable, as Apple Music has only 40 million paying subs.

Thus, early bulls’ forecasts for Spotify to hit 276 million MAUs, and 150 million premium subs by 2020 are not out of the question. If you’re a true contrarian, I can understand the appeal for Spotify stock.

Management has a Long-term Approach

Being in first place is an expensive undertaking. Fortunately for SPOT stock, Spotify is blessed with a strong balance sheet. Management is sitting on a pretty $2 billion cash account, and better yet, they have no debt. Therefore, they can make key investments to build on their momentum.

That’s exactly what they’re doing. If you take a look at their research and development expenses, they’ve skyrocketed over the past few years. While that obviously impinges upon nearer-term profitability, I can appreciate management’s forward-looking strategy.

Music streaming will not be an easy arena in which to compete. At least the leadership is giving Spotify stock a chance to do well.

That said, the financials segue into the not-so-great elements working against SPOT…

Poor Financial Performance Hurt SPOT Stock

I realize that SPOT stock is a growth opportunity. As such, management must endure sacrifices now for establishing dominance later. But at some point, investors must at least see a positive trajectory.

Instead, we’re treated to widening losses in net income. In 2014, Spotify reported a loss of $251 million. For the trailing-12-month period, the company is staring at a loss of $1.3 billion. It’s a small improvement from 2017’s $1.46 billion loss, but I can understand why many investors are worried.

Furthermore, the current market environment doesn’t necessarily favor speculative growth firms absorbing huge losses. Rather, investors seek stability, which usually means dividends. Last time I checked, Spotify stock does not pay a dividend.

Steep Competition

This is also a no-brainer, but it’s worth reminding so that you don’t fall irrationally in love with SPOT stock: Spotify has massive competition.

As I discussed earlier, management has successfully fended off its well-resourced rivals. Moreover, Spotify essentially has an open-source platform, while Apple Music is centered on the Apple ecosystem. Therefore, it’s easier for consumers to use Spotify, which also explains its high conversion rate.

But let’s not kid ourselves. Consumer-electronics firms like Apple are seeking new channels in light of “peak smartphone.” If push comes to shove, these stalwarts can really leverage their mammoth weight.

Spotify Is Just a Middleman

Finally, we have to talk about the giant pink elephant in the room: Spotify is just a middleman.

When Sony (NYSE:SNE) bought out the remaining shares of EMI Publishing that it didn’t already own, the move made sense. Sony is now in the content game. With its movie, music and video-game empires under one umbrella, they lever natural and extremely-profitable synergies.

In other words, Sony controls its products. What does Spotify control? A good relationship with music executives, I suppose.

That relationship will almost surely come under fire because the music labels know they’re in the driver’s seat. In 2014, Taylor Swift boycotted Spotify for a period of three years before returning to the platform. At the time, she argued that individual artists receive only a tiny royalty through streaming services.

I don’t want to dive into the specifics. The point here is that this was just one artist. Imagine, though, if entire labels started squeezing Spotify? I can’t imagine that’s a positive for SPOT stock.

Final Thoughts on Spotify stock

At its previously elevated price, I wouldn’t touch Spotify stock. Too many questions exist to make me comfortable buying into such extreme enthusiasm.

However, at its present cost, I admit I’m intrigued. I wouldn’t recommend going all in. However, it has enough potential to steadily regain investors’ trust.

As of this writing, Josh Enomoto is long SNE stock.