Music streaming service Spotify Technology SA (NYSE:SPOT) has seen its shares slump over the past month. After closing at an all-time high of $364.59 on Feb., 19, SPOT stock is now trading in the $252 level – down some 30%.
Shares in the world’s most popular streaming music service hadn’t done much since the company’s 2018 initial public offering, until they caught fire in 2020. With SPOT stock in a slump, what will be the catalyst that kicks it back into growth mode?
Betting on Podcasts and Spotify WiFi
As I wrote last week, Spotify has been working hard to pump up its streaming offerings.
The company has been paying big – Joe Rogan landed a $100 million payday – to boost its podcast content. In total, it’s estimated the company has invested in the range of $1 billion over the past two years on podcasting. That could eventually expand into a standalone offering able to pull in subscribers who aren’t really interested in streaming music.
The company is also experimenting with adding advertising to the podcasts to generate revenue, although premium subscribers are pushing back.
The company is also preparing to launch Spotify HiFi, high-resolution streaming music. The bet is that listeners who invest $500 or more on premium headphones and wi-fi connected portable speakers will be willing to pay extra for a premium, CD-quality listening experience.
Could Hardware Be the Answer?
Speaking of $500 headphones and portable speakers, could Spotify-branded hardware be the next big catalyst for growth? After all, Spotify compatibility is a big selling point for many of these devices. The tech giants who fill the streaming music slots below first-place Spotify all sell audio hardware – usually optimized to make the most of their own services. The global market for headphones (which are used primarily for listening to music) in 2020 was worth $34.8 billion. It’s projected to hit $126.7 billion in 2027.
That’s a potential opportunity, but breaking into the consumer audio market against established brands is no small task. Adding to the challenge, Spotify has no manufacturing capability and no experience in designing consumer electronics.
The company has been working on a device it calls “Car Thing” for several years. It showed up again in FCC filings earlier this year. We aren’t entirely sure what the Car Thing is. But it appears to be a voice-controlled smart assistant for use with car audio systems. It’s unknown whether Spotify will even release Car Thing, but it seems to be a very tentative dip into hardware. Not something that would move the needle on SPOT stock. But it does show the company is at least considering adding hardware to its lineup.
Bottom Line on SPOT Stock
Analysts aren’t convinced that what Spotify is doing now will be enough to move SPOT stock back into growth territory. Those polled by the Wall Street Journal have the stock rated as a consensus “hold.” Their average 12-month price target offers a very modest 3% upside. A January downgrade by Citigroup analyst Jason Bazinet to “sell” pushed SPOT stock down 7.4% in a single session.
Last year, Spotify’s CEO told CNBC that growth is job one for his company:
“We’re in the growth stage, trying to capture that growth. Eventually we will get to more of a point of maturity where we’ll focus more on profit over growth, but for the next few years it’s going to be predominantly growth for us.”
Initiatives like podcasting, high-resolution music and possibly even hardware are all part of that growth equation. But only time will tell whether they also prove to be a catalyst that will help to kick SPOT stock back into growth mode as well. For those who feel the company is on the right track, being able to pick up SPOT stock at a nearly 30% discount compared to its February high presents an opportunity.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.
