Spotify (NYSE:SPOT) has faced some big hurdles. The entry of big players like Apple (NASDAQ:AAPL) into the streaming music business in 2015. The push by artists for larger royalty payments, and other recent controversies. Now, Spotify — or more accurately SPOT stock — may be facing its biggest challenge yet. Many of the workers the company counted on to drive subscriber growth over the past several years are returning to the office.
SPOT stock surged during the pandemic. Remote workers put on their headphones to listen to streaming music and podcasts. Locked down and starved of entertainment, many consumers in general signed up for a Spotify subscription.
Between February 2020 and February 2021, SPOT stock was up nearly 150%. On February 19, 2021, shares closed at $364.59, the stock’s all-time high. Now trading at less than half that price, Spotify could be facing even tougher times.
Here’s why.
Spotify Fourth Quarter Showed Slowing Subscriber Growth
On Feb. 1, Spotify reported its fourth-quarter numbers. They revealed a problem in the form of slowing growth. For Q4 2021, monthly active user growth was up 18% year-over year. Growth in paid subscribers for the quarter was 16% YOY.
The year before, those numbers were much stronger. For Q4 2020, monthly active user growth hit 27% YoY. Paid subscribers grew 24% YoY for the quarter.
The numbers show a significant slowdown for Spotify. The market reacted by sending SPOT stock tumbling to a $159.76 post-earnings close. That was a single-day drop of nearly 17%. At this point, Spotify shares have yet to recover to that level. Currently trading in the $143 range, SPOT stock is worth less than it was on the day shares first started trading back in April, 2018.
The problem isn’t just that Spotify’s user growth slowed during the fourth quarter. The concern is that there’s even worse to come on that front.
Return to Office Is Not Likely to Boost Spotify
After two years of remote working, companies are now pushing to have their employees return to the office. Many of these companies may end up adopting a hybrid work schedule, where employees are still able to work from home for a day or two per week. However, the move from a fully remote working model is probably not going to play out well for Spotify.
Headphones in the office can be a point of contention. A 2012 Harvard Business Review article warned that employees wearing headphones at work were a drain on innovation, resulted in a loss of shared purpose and made workers feel less connected. On the other hand, a move toward noisier open layout offices has led to millennial workers in particular relying on headphones — streaming services like Spotify — to increase their productivity.
A return to the office is likely to be less packed thanks to hybrid schedules that have fewer employees there at a time. That reduces the need for headphones to block background noise. At the same time, expect employees to be under pressure to take advantage of their time in the office to interact with co-workers.
Headphones streaming Spotify music and podcasts will still have a place in the office. However, the glory days of 2020 when employees could stream Spotify all day, every day, are over. That’s going to cut down on the rush to sign up for a subscription, and it’s also going to impact the growth of monthly active users.
Add the return to the office to the slowing subscriber growth as consumers in general return to “normal” life after the pandemic and the next year doesn’t look particularly rosy for those who are looking for SPOT stock to recover to even January levels.
Bottom Line on SPOT Stock
When I look at SPOT stock, I don’t see long-term growth. 2020 and early 2021 saw the kind of performance investors dream of, but that was a temporary blip caused by a very unique set of circumstances. It’s unlikely to be repeated.
At this point, the company is expected to finally be profitable on a consistent basis in 2022 as it rides the podcast wave. However, at the same time it’s going to be running into a potential brick wall in the form of a return to the office.
SPOT stock delivered great returns for one year. But since the company went public in April 2018, the story has been very different: A dismal loss of nearly 6% of its value. You don’t want a stock like that in your growth portfolio.
Ultimately, Spotify stock is worth keeping an eye on to see how the company navigates 2022. Perhaps office workers will keep listening and an era of steady profits will kick off. However, at this point, the stock earns an “F” grade in Portfolio Grader and should be avoided.
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.
