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The following segment was excerpted from this fund letter.
Spotify (NYSE:SPOT)
Spotify is the #1 holding in the fund and we have covered it numerous times in our previous letters. Here is how Spotify “The Company” is doing:
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In 2021, they grew Monthly Active Users by 18% and are estimated to grow 16% in 2022
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Free Subscribers increases by 30%
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Total Revenues increased 23% in 2021
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Ad-supported revenues grew 62% in 2021 and have been growing at 33% per annum for the past 5 years
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Gross Profits increased 29%
Now, let’s take a look at what Spotify “The Stock” has done:
Spotify‘s stock was down -26% in 2021 and is down another -54% in 2022.
As you can see from the graph above, Mr. Market has been “depressed” about Spotify as it took its stock price below its IPO price in 2018, and sees nothing but trouble ahead, along with the rest of growth tech stocks. This is contrary to 2020-21, when Mr. Market felt euphoric about Spotify (stock was as high as $370), and could only see the favorable factors affecting the business.
At today’s price, investors are only paying about $98 per paid subscriber when they buy Spotify stock. Just for entertainment purposes, investors were willing to pay close to $1,200 per subscriber for Netflix in 2021.
Now, we understand that stocks take cues from the future and not the past, and there are some valid concerns about the economy and future growth ahead. However, as we focus on the fundamentals of the business, we see a huge divergence between Spotify “The Company” and Spotify “The Stock” right now. Historically, these divergences have proven to be the source of great opportunities!
Remember, you always have to let the market serve you and not to instruct you, and that’s what we intend to do.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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