Will the Spotify Share Price Continue Its Upward Trajectory?

Spotify has been pushing into the world of audiobooks in a bid to challenge the dominance of Amazon’s Audible. Some analysts are confident that its plan will pay off in the long run, even as the streaming giant raises its prices once again.

Spotify [SPOT] is set to hike its prices in five markets, including the UK, Australia and Pakistan, by $1 or $2 per month. The increase will go into effect by the end of this month, and will hit the US later this year.

According to a Bloomberg report, the move will cover the cost of its audiobooks service, introduced last year.

The Swedish streaming giant has been a focus of ‘super investor’ activity.

Six leading investors bought $307.4m of SPOT stock in Q4 2023, while another four super investors sold a combined $326.5m, according to Stockcircle.

Buyers included Ray Dalio, Founder of Bridgewater Associates, who bought 71,500 Spotify shares, increasing his holding by 71.8%, and Citadel Founder Ken Griffin, who snapped up approximately 1.6 million, boosting his stake by 3,127.3%.

Sellers included Jim Simons, Founder of quant fund Renaissance Technologies, who pared down his stake by 41.7%, offloading approximately 377,000 shares, and Point72 CEO Steve Cohen, who sold 101,000 shares, cutting his holding by 20.4%.

Spotify Narrows Losses in Q4 2023

Spotify narrowed its loss in Q4 2023 to €75m from €231m a year earlier, mainly thanks to its subscriber growth.

Monthly active users (MAUs) jumped 23% from the same period a year ago, reaching 602 million by 31 December, up from 574 million at the end of Q3.

“Net additions of 28 million represented the second largest Q4 net addition performance in our history,” noted the company in its earnings release in early February. It expects to have added 16 million new MAUs in Q1 2024.

Premium subscribers, who are responsible for driving most of the revenue, grew by 15% from Q4 2022 to 236 million in Q4 2023. This number is expected to have risen to 239 million in Q1 2024.

“With revenue and profitability trends both inflecting favourably heading into 2024, we view the business as well positioned to deliver improving growth and profitability,” added the company.

Audiobooks Should Grow Subscriber Base

Spotify has a long-term target of hitting a billion users by 2030, and its audiobooks service, launched in the US last November, could help the streaming service to achieve this goal.

“In Q4 [2023], we became the number-two provider of audiobooks behind Audible, which is notable given how entrenched the legacy players are,” said CEO and Co-founder Daniel Ek on the earnings call, referring to Amazon’s [AMZN] Audible.

Ek added that he wanted to “grow the pie for the publishing industry and expand the interest in audiobooks to an entirely new set of listeners”.

The heavy investment in audiobooks coincided with the streaming service laying off 1,500 employees, or 17% of its workforce, back in December. In a note to investors at the time, Ek said that the “cost structure for where we need to be is still too big”.

The question, though, is whether the company’s investment in audiobooks will pay off in the long run.

In March, Spotify added the Audiobooks Access tier at $9.99 per month, which includes 15 audiobook listening hours. Despite it only being $1 cheaper than the Premium tier, which bundles 15 hours of audiobooks with unlimited ad-free music, Rutger Rosenborg, Audio Analyst at Midia Research, believes the new tier can help bring more subscribers to the streaming service.

“For a lot of users, having more audio format options at a lower price will be enough to drive conversions from Audible to Spotify,” argued Rosenborg.

SPOT Stock Rallies Despite Price Hikes

Against the backdrop of cost challenges and price hikes, the Spotify share price has been on a tear in the past year through 8 April, up 134.2%. It’s also gained 65.1% year-to-date and 19.6% in the past month alone.

Another way to gain exposure to the streaming service other than holding the stock outright is to invest in thematic ETFs.

The Global X Millennial Consumer ETF [MILN] has Spotify as its fifth-biggest holding, with a weighting of 4.1%, as of 5 April. The fund is up 31.4% in the past year through 8 April and up 8.8% year-to-date.

The MUSQ Global Music Industry ETF [MUSQ] has Spotify as its fourth-biggest holding, with a weighting of 3.8%, as of 4 April. The fund is up 0.7% since launching on 7 July last year and is up 0.7% year-to-date.

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