Can Activist Investors Save Spotify (SPOT) Stock?

  • Spotify (SPOT) is rallying on the day, with SPOT stock up about 5% as an activist investor gets involved in the name.
  • ValueAct has reportedly taken a position in the name, aiming at trimming expenses and boosting efficiency.
  • Shares are up about 75% amid an eight-week winning streak, although Spotify recently reported an earnings and revenue miss.
SPOT stock - Can Activist Investors Save Spotify (SPOT) Stock?

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It’s a sea of red in the stock market on Friday, but not for Spotify (NYSE:SPOT). Shares of SPOT stock are actually up on the day, higher by around 5% at last check. That’s as an activist investor gets involved in the name.

Reports now say that ValueAct Capital has taken a position in Spotify. However, it did not come to public knowledge in a traditional way.

According to Bloomberg, the position was disclosed by ValueAct CEO Mason Morfit, who made the comments at a Columbia University event on Friday.

Like most activists, ValueAct wants the company to focus on its spending and more efficient operations. However, the size of the position was not disclosed. According to Morfit:

“Spotify’s superpower was combining engineering breakthroughs with organizational abilities — it organized creators and copyright owners to build an entirely new economic model that benefited everyone involved… During the boom, it applied these powers to new markets like podcasts, audiobooks and live chatrooms. Its operating expenses and funding for content exploded. It is now sorting out what was built to last and what was built for the bubble.”

Just because an activist is involved, doesn’t mean that SPOT stock will suddenly explode higher. However, retail investors generally like having an activist in their corner, as they lobby and push for improvements in the business. Those improvements can have a direct impact on earnings, which boosts the value of the stock.

Will an Activist Help SPOT Stock?

ValueAct’s position in SPOT stock is just the latest development in activist investing. Salesforce (NYSE:CRM) has seen multiple activists enter the name over the last few months and while shares were struggling quite a bit last year — hitting new 52-week lows in late December — the stock has done quite well this year.

It’s worth noting that Morfit was nominated to Salesforce’s board of directors last month.

The same can be said for Disney (NYSE:DIS), which had Nelson Peltz’s Trian Fund Management involved in the stock. However, it’s worth noting that Peltz recently said: “We wish the very best to [CEO Bob Iger]. We will be watching. We will be rooting. The proxy fight is over.” This comes after the company just announced a large restructuring.

Peltz added: “Now Disney plans to do everything we wanted them to do,” which the firm said is “a win for all shareholders.”

Will it end in a similar manner with SPOT stock and ValueAct? It’s impossible to say, but investors certainly hope so.

That said, the stock sure has done well lately without an activist at hand. If SPOT stock can maintain today’s gains, it will mark the stock’s eighth straight weekly rally. In that span, shares have climbed more than 75%.

While shares did rally after Spotify’s earnings report on Jan. 31, it’s worth pointing out that it missed on earnings and revenue expectations. However, investors overlooked the shortfall in the top and bottom lines as margins and subscribers impressed. Clearly, though, there’s room for improvement.

On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.

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