Spotify Technology: Looking to the Next Verse of Growth

研报英文原文证据摘录

Spotify Technology: Looking to the Next Verse of Growth

Ahead of the next Act

SPOT heads into its 5/21 Investor Day as somewhat of a battleground stock as shares

have underperformed over the last twelve months. We attribute this underperformance

to: 1) overall market dynamics as perceived “defensive” stocks following “Liberation

Day” saw considerable outperformance but subsequently witnessed mean reversions, 2)

concerns related to AI, where SPOT had once been a perceived winner and has now

become more debatable given the proliferation of newer AI platforms alongside

continued competition from FAANGS, 3) concerns regarding potential slowing

growth/reaching peak penetration in some of the larger more developed markets and 4)

there may be more structural investment required by SPOT to maintain their strong

market positioning amid the ever evolving market landscape (as indicated by 1Q results).

We acknowledge several of these concerns, particularly potential AI disintermediation,

are difficult to disprove in the near term. However, the stock has corrected from peak

levels with shares now trading at ~24x CY26E EBITDA (from >40x at recent peak) and

~17x CY27E EBITDA (from >30x at recent peak), which in our view, already reflects

several of these overhangs. We anticipate SPOT’s upcoming Investor Day can address a

number of these questions, as well as provide investors with greater confidence in the

longer-term growth trajectory of the business. We see 5 major topics that SPOT will

likely need to address including: 1) New product cycle, 2) trajectory of gross margins, 3)

recent increase in operating expenses, 4) future growth algorithm and 5) AI narrative. We

discuss each in more detail below.

Exhibit 1: SPOT’s EV/EBITDA multiple has compressed to roughly the five year average