Spotify stock - I took a look at their fundamentals...

I do have graphics that supplement the information provided here, so check out the full video to get a better understanding of my findings: https://youtu.be/eAdbJSZFl74

• Now first off - as a consumer - I love this service. Been using it for about 3 years now, and no plans to stop. It's one of the few services I use almost EVERY SINGLE DAY. I would say the majority of my friends have a Spotify account as well and whenever we are out at a party and someone wants to play a song - Spotify is the go to app. But does this company have a good future from an investment perspective?

• So first before we get into the nitty gritty, let's take a look at their business model. What I found was that they work on a freemium model to convert their free users to premium users (there's a graphic I have on this that's in the video...). The benefits for Premium include Ad-free music, On-Demand - so you can select and play any track you want - and they allow you to play songs offline. They claim that this is the ideal model as it helps them attract users who want a free-ish platform, and over time convert them to a premium user. However the drawback here is that converting a user from free to premium takes time, and once they are premium, it takes time to pay off. In fact, Spotify says that it takes them 12-months to break even on subscribers - so that is a long turn around time even after a user starts paying for the service.

• I can really see Spotify being something pretty big in the future, however, competition is heating up as they currently they compete with Apple - Apple Music, Amazon - Prime Music, and Google - Google Music. They also have smaller competitors like Pandora and TuneIn on some levels and this right here is my biggest red flag - however it may not be all that bad. They are continually growing with DAU and MAU YoY (graphic in video) - which is a good sign - but eventually this will slow down and they will need to look at other sources for revenue.

• I really like comparing Spotify to Netflix - back in the day when Netflix was building up steam, people compared it to Google Play Movies, Hulu, Prime Video, etc. But NFLX has managed to break past the hurdles and really leapfrog the competition - they are the GO TO platform for TV shows and movies. And how did they get here? IMO it was through Original content - and this is how I think Spotify is going as well. The way I see Spotify is that it will eventually become it's own record label and they will hire artists to create songs and albums exclusively for the Spotify platform. This will encourage people to stay subscribed to Spotify, and will encourage new users to join the platform. If they continue on their current path, sure their user base will keep growing, but how can they truly monetize?. Subscriptions only go so far, and eventually they need other sources of revenue. Maybe we will see concerts hosted by Spotify, maybe they will host exclusive music festivals? There's a lot of potential - but we have yet to see them to anything significantly different from just Music Streaming. Podcasts are picking up popularity on Spotify - which is another growing segment for streaming - but this will eventually hit the same hurdles they currently face with music streaming.

• Revenue has been growing YoY (graphic in video), however the bulk of it is from subscriptions and very little is from advertising. I think that this advertising piece needs to be a lot bigger to take them to the next step.

• So should you buy Spotify stock? Well, they are currently a company that is focused on growth, not profits and this means they are fine with losing money in the short term for potentially big profits in the long term. This is not a stock for value investors, but it may be a good stock for growth investors due to the potential market reach they could have in 5, 10, 15 years. I personally am going to continue being a customer of the service, but as of right now, I'm not going to be an investor until they can prove a model to me that shows consist profit in the BILLIONS.

Submitted April 17, 2018 at 04:48PM by blackdragon1299 https://ift.tt/2JRMw5w