Despite Its Decline, Buy Spotify as Its CEO Increases His Stake

SPOT stock - Despite Its Decline, Buy Spotify as Its CEO Increases His Stake

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Has the music stopped for Spotify Technology (NYSE:SPOT)? In February 2021, SPOT stock reached its all-time high, topping $360 per share. A little over a year later, Spotify has slumped below $100 per share. Many people are writing off the firm as a company that will never reach meaningful profitability.

Spotify’s slump has also come alongside a crash across the streaming space. Plays such as Netflix (NASDAQ:NFLX) have also plummeted amid slowing subscriber growth. In a market where even Netflix can’t maintain investor interest, who is willing to buy Spotify while it’s down? Well, one important person is, at least.

Unlike many tech companies where insiders are either selling stock or not taking action, Spotify’s leader is stepping up. Its founder and CEO Daniel Ek tweeted last week: “I’ve always been vocal about my strong belief in Spotify and what we are building. So I am putting that belief into action this week by investing $50M in $SPOT.”

With shares around the $100 mark, this means Ek will be buying close to 500,000 shares of SPOT stock. Sometimes, insiders buy token amounts of their stocks during a selloff to try to show confidence. However, $50 million is a whole other matter; CEOs only throw that sort of money around when they have strong confidence in their business’ prospects.

And, when you look at the last Spotify earnings report, it really wasn’t as bad as you might think. The company’s revenue did miss projections modestly, but were still up 24% year-over-year (YOY). Earnings per share topped expectations. And arguably the most important metric, paying subscribers, grew 15% YOY to 182 million.

That’s even more impressive than it looks, as that growth includes the fact that Spotify lost 1.5 million subscribers in Russia. It wound down that service following the invasion of Ukraine.

The long-term story for Spotify is still that it needs to be the dominant music streaming platform. In doing so, it will be able to negotiate better royalty rates with the record labels and start generating meaningful profits and cash flow.

As Spotify has more paying subscribers, it also creates more value and network effects with its own produced content, such as its original podcasts. Spotify — unlike Netflix — is still growing its paying subscriber base quickly even in this current downturn for digital services.

Ek concluded his tweet by saying, “I believe our best days are ahead…” It may seem hard to keep the faith in the company right now with shares down by two-thirds just since November. But Spotify is continuing to perform well operationally.

The company’s CEO just put $50 million of his own funds into SPOT stock amid its crushing decline. With Ek buying shares in a big way and the company continuing to grow, Spotify is one of the most interesting tech stocks to look at during this sector wipeout.

On the date of publication, Ian Bezek held a long position in SPOT stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.


Article printed from InvestorPlace Media, https://investorplace.com/2022/05/despite-its-decline-buy-spot-stock-as-its-ceo-increases-his-stake/.

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