Okay, very nice risk. on day you had a huge green day across indices and a massive bounce in the tech heavy Nasdaq. While we don't know how long this back and forth market condition will last and whether this is yet another bull trap, it is worth remembering that the con of high beta tech stocks is they will get bludgeoned a lot faster than the rest of the market during bad conditions. But the big pro is that during good conditions during risk on conditions you get them going up a lot faster sometimes many multiples.

and on days like this, they do give you a taste of what it's going to look like when you do eventually get a reversion back to risk. On when that will be though, who knows, maybe I'll have gray hair. But anyways, in today's video, I want to talk to you about one stock that is down about 50 from last year's highs. This is a well-known company that we haven't talked much about in the past, but has gone super mainstream over the last five years.

They are also very, very commonly mentioned in the news right now, unfortunately for not good reasons, more controversial reasons, but still, this is a platform that you've almost certainly heard of if not actually been a member of it, and the company is Spotify Spot. They are trading not too far from Pre-cove at Highs. Despite the fact that Spotify has grown substantially since then, I want to discuss whether or not this is a buy and some of my projections moving forward. So the case for Spotify is that Spotify is the global leader in audio streaming, but its business model has not yet matured, which means substantially more room for growth, especially after this recent downtrend.

Some highlights: Spotify recently overtook Apple as the largest podcast platform in the Us. and if you look at the competitors side by side in terms of just Music streaming, which of course, has been the main focus of Spotify so far, Spotify has not just a significant lead over Apple Music, Amazon Music, and Youtube Music, but its growth rate is consistently stronger than the others. despite having such an insane said lead to keep in mind that these aren't pansy companies that Spotify is fighting. We're talking Apple, Amazon, and Alphabet.

These companies have every advantage in the world. Huge sums of money that they could just throw out whatever project they want, huge customer bases that they could cross sell in all the data analytics in the world to figure out exactly how to get to consumers. Yet Spotify is destroying them. which really says a lot.

And don't forget, audio streaming is a big damn business that provides a lot of monetization avenues such as subscriptions, advertisements, sponsored recommendations, live audio events, and so forth. But you look at the numbers: they have 172 million paid subscribers. For context, In the wider streaming niche, Netflix is probably the biggest comparison, and Netflix has 214 million subscribers and Disney Plus has 118 million subscribers. And we're just talking paid subscribers.

When you add in their 381 million monthly active users, that's a lot of users to leverage. In terms of content. They have 70 million tracks of songs and Spotifys available in 184 markets, so certainly a global brand. If you look at their monthly active users, they have a nice split between North America, Europe, Latin America, and the rest of the world.

Certainly very, very diversified. Also, before we move on anymore, make sure that you are aware that their earnings date is on February 2nd, which I believe is what is that? Wednesday? Yep, Wednesday. So make sure if you are thinking about buying the stock to be aware of that earnings date, because you can get a dramatic move. It's very, very possible that in the short run, they underperform like we've seen some other subscription models do, specifically because you're moving from that stay-at-home trend to more of a longer-term organic trend.

But if it does drop, you may see that as an even bigger buying opportunity because of the other stats that I'm going to read you. So in terms of monetization stats, their primary revenue stems from pain subscribers and ad revenue. As of the last report, premium subscribers are up 19 year-over-year Ad-supported monthly active users are up 19 year over year as well. Premium revenue is up 22 year-over-year ad supported revenue is up 75 year-over-year Now, if you want to make an argument for Spotify, it has to be based around the center powerhouse of Spotify, which are the Maus the monthly active users.

Obviously, the more monthly active users they have, the more people they can feed advertisements and the more subscriptions they can sell but over a longer term time horizon. the more Maus they have, the more power Spotify has to get better and better content at cheaper and cheaper prices. And the more that Spotify creates a gravitational pull around it, drawing people in. In order to understand this, you have to understand their business model right now and some early stage problems they're having in terms of how their streaming business actually works.

You compare it to say, Netflix, which is obviously again more movie and tv show focus, but still very comparable. In most senses, Netflix has huge upfront costs for creating original content or licensing content from other people who created it, but it does not have to pay based on the number of times this content is viewed. They may pay a ton upfront to create original content like your squid game or licensed content from other studios, but regardless of whether or not these are huge hits, Netflix only has to pay one upfront cost, whereas with Spotify for the most part, it's on a per listen basis, so more listening equals more costs, whereas with Netflix, more listening equals same costs. Both companies are incentivized to create as many subscriptions as possible, but with Spotify if they get more and more subscriptions that means they also have more and more cost because people are going to be listening to more things which is a big problem in terms of margin and one of the reasons that analysts hate the stock.

But you see, I would argue in the long run, Spotify has a lot of ways to fix this. Firstly, they have been investing huge in expanding their podcast segment which is a segment that they pay up front for similar to the Netflix model and they don't have to pay per lesson. It's very expensive up front so it does screw with the numbers on the reports, but over the long run you should start seeing this pay off and analysts aren't factoring that in. Right now they've been very specific at acquiring very popular podcasts like Joe Rogan and a number of others that have very, very niche but powerful and big audiences.

But the main opportunity in terms of the future is leveraging users as a whole. The more users that Spotify has, the more of a draw listed on Spotify's platform is. Here are some ways that Spotify will continue to scale up leveraging users. One way of leveraging users is through sponsored recommendations Similar to how Seo managers could pay Google to have their website appear first in search trends, artists can pay Spotify to boost their tracks.

You also have of course targeted advertisements, which is a very, very big and far-reaching business considering radio spend is one of the biggest fields of advertising spending, all of that market is going to go towards streaming in the long run and people aren't going to be listening to regular radio. In 20 30 years they're going to be listening to streaming in their car. A lot of people already are. I know I am.

But importantly for future growth, you also have what I call the gravitational pull effect you see in the beginning stages. Spotify has had to pay out of the year to license content and get people on the platform acquire customers by providing actual value They have to pay to build the system and to get people into their system. But once they built the platform got a decent amount of content and now have a bunch of loyal consumers. The math reverses all of a sudden.

Now they have their own gravitational pull where in order to actually access that huge audience that Spotify has, well, creators and record labels are going to have to. What negotiate with Spotify and Spotify is going to have the upper hand? Why is it that so many video creators choose Youtube to post their content and even will share the revenue that they generate with Youtube to post that content instead of Youtube paying them to post the content? Well, the reason is simple because Youtube has all the users. Once Spotify has that dynamic going for it. All of a sudden you switch from Spotify, having to pay tons and tons of money to acquire things to get more customers from others wanting to make the best deal possible with Spotify to be listed on the platform and actually reach people.

Now, Spotify is kind of like a music version that's somewhere between Netflix and Youtube. A little bit closer to Netflix than it is Youtube, but you get the point now. The other way that Spotify can leverage is through what I call the streaming company effect. Traditionally, if you wanted to build a streaming service, you'd have to go and license movies and Tv shows from a producer or a movie studio.

But then when streaming competition heated up and everybody was doing the same thing and offering the same thing, Netflix had a pivot into original content and they became their own movie studio. And then all of a sudden the competitive factor was not can you license as many movies and Tv shows as possible, but rather who could produce the best original content content that could give you a big competitive edge and content that can't be found on other platforms. Now, in some senses, that's already happening. Spotify is effectively working that angle by acquiring the rights to exclusively list big popular podcasts, But at a certain point, Spotify will have a lot more weight to throw around with record labels as well.

I think eventually you'll start seeing artists, go directly to Spotify, or some form of record label that Spotify can create, and that would streamline the process a lot faster. Artists would be happy because they go straight to the biggest audience platform. Spotify would be happy because they could own and exclusively list that music and perhaps even license to other platforms at a higher rate, and audiences would be happy because Spotify would help fund new creative artists. And then the last point here is that being a leader means you have a ton of data.

Spotify knows the taste, the engagement patterns, the listening decisions, and can more accurately predict and fine-tune its algorithms to match consumer demand. Now, as somebody who switched from Apple Music to Spotify myself not sponsored the personal reason I did that was because the algorithm at Spotify is so much better and based on my research, that's why most people switch. For whatever reason, Apple, Alphabet, and Amazon especially have been very, very bad with the algorithms on these music platforms. which is very strange considering how good Alphabet is at algorithms, how many users Apple can market to how integrated Apple has made its platform with its iphones, and with Amazon, how many people are already prime members.

But the point is that Spotify has mastered the algorithm right now, and that lead is likely going to continue to accelerate as Spotify can take what it's learning right now in the Ai and further fine-tune it over the years to accelerate at a faster pace than the rest. A few other things: I like: the company's founder-led and he owns a ton of stock. There's nothing that I like more than seeing the original visionary in a company and also having a big stake in the game. They also have the ability to easily raise prices and pass on increasing operational costs to consumers, which is helpful in an inflationary environment.

Uh, the valuation is cheap. Based on what you're getting, The price to sales ratio is near historic lows at about 3.5 significantly less than what it was last year. During the depths of the Covet scare when Spotify's advertisement segment was thought to be completely destroyed, it only went down to 2.8 and that was supposed to be the worst case scenario at the time for the company, people thought that Spotify was going to go bankrupt. Obviously the opposite happened, but still, right now, you're getting very, very close to trading at those levels.

Things that I don't like: Well, I see media companies as increasingly delicate right now. Spotify has traditionally not had this issue because it could just list. songs and songs don't come with a lot of drama, whereas when you get to the situation where you're hosting podcasts, you get a lot of drama because there's people that are going to say things that are against societal norms. And then you get the situation where you have all these people that are upset and they want censorship whether it's on serious issues or not.

That causes a lot of controversy and we've seen a lot of media companies struggle with how to handle that. I'm of the opinion that most people are reasonable adults who can make their own decisions on important issues without platforms having to decide what they can or can't see, but unfortunately I may be in the minority so this is a toxic damn issue. There's also the con of the stay-at-home transformation trends. A lot of streaming companies got a nice boost during the pandemic, and now they are starting to cool down from that organic trend.

Analysts are looking at that and saying okay, well, they're permanently going down forever instead of looking at the longer term trajectory which is up. And that issue isn't helped by the overall multiple crunching in terms of Fed interest rate increases. But overall, considering where this is trading right now and where it could be trading in just a couple years, I would argue that's also a big inefficiency. So anyways, we'll see how their next earnings report looks, and we'll be following the stock, but it's starting to look very, very juicy.

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