Streaming audio provider Spotify (SPOT) hasn’t been having a great run lately. However, it’s eager to turn things around, and its latest move to bring audio fiction to its platform may give it a hand.
Given the circumstances, I’m not sure that’s enough to really help. I’m bearish on Spotify because there’s not much going on therein that makes it stand out from the rest of the field.
The last year for Spotify shares has been one mainly of ups and downs. The last five months, though, have been mostly down. In fact, Spotify lost a little better than half its value in the space between November 2021 and March 2022.
The latest news might perk up at least some investors. Spotify is ramping up its fiction offerings by bringing out a new item featuring no less than Batman’s alter-ego Bruce Wayne. Dubbed “Batman Unburied,” it’s the first podcast in a deal set to go on for the next several years between Spotify and DC Comics, an AT&T (T) property.
Wall Street’s Take
Turning to Wall Street, Spotify has a Moderate Buy consensus rating. That’s based on 15 Buys, seven Holds, and one Sell assigned in the past three months. The average Spotify price target of $238.82 implies 60.4% upside potential.
Analyst price targets range from a low of $140 per share to a high of $300 per share.
Hedge Funds Slowly Looking for the Exits
One major problem Spotify faces going forward focuses on hedge funds. Hedge funds sold off just over 655,000 shares last quarter, according to the TipRanks 13-F Tracker. That declining interest won’t ring any bells for investors interested in buying in or staying in.
Moreover, this is the second quarter in a row that hedge funds have sold off. This two-quarter sell-off follows five consecutive quarters of gain in position with hedge funds, suggesting larger problems below the surface.
Worse, Spotify’s dividend history is nonexistent. Spotify, based on current records, has yet to actually issue a dividend to shareholders.
Spotify’s Competition May Get the Better of It
Spotify offers a reasonably robust lineup of content that should keep its users comparatively happy. Yet, that’s the biggest problem for Spotify in a nutshell. In a bid to find out just what conditions over there were like, I signed up and started looking around. It took some time to get used to the interface. That’s a problem in and of itself.
Music went smoothly enough. A search for “90s music” on Spotify turned up plenty of possibilities, enough to dwarf the likes of SiriusXM (SIRI).
Looking for audio fiction on Spotify, meanwhile, was almost worse. Just starting with the selection “creepypasta”—a term for horror fiction of various lengths—a handful of results greeted me on Spotify, including two of the biggest names from YouTube, CreepsMcPasta and Mrcreepypasta.
Going to YouTube presented me with a seemingly unending scroll bar that offered individual titles, links to channels, and several items I never knew existed. YouTube’s “90s music” offering proved similarly robust.
So, therefore, I can’t help but ask: why Spotify? What can Spotify offer that users can’t get for free with some mild ad support on YouTube? The answer doesn’t seem to be all that much, and that has me concerned for Spotify’s future going forward. Sure, Spotify has some novel entries and exclusive content, but is this enough to get users to sign up?
Even the new Batman content smacks of desperation; DC has trotted out the Batman as one of its last big money-making prospects, which has resulted in several dubious entries. Batman’s recent connection with the e-sports giants of FaZe Clan seems particularly dubious. Bringing out Bruce Wayne as a solo character seems like an even bigger stretch.
Concluding Views
With hedge funds bailing out, the lone bright spot of Spotify—its massive upside potential—seems less like a target to shoot for and more like a pipe dream. Spotify is pushing its lowest target right now, and it almost seems like a reasonable ground to hold.
If Spotify wants to keep interested customers, it badly needs reasons for them to stay. With the Podcast Union preparing to walk over contract terms, that’s going to hit Spotify even harder in the original content department. Without compelling reasons to stick around, Spotify’s ability to monetize its users with advertising and premium subscriptions plummets.
Without some truly compelling new features, Spotify is likely to be overrun by its various competitors. That leaves me bearish on this company’s stock and watching to see if the company can pull any rabbits out of its hat before it’s too late.
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