2022 was tough for streaming audio leader Spotify (New York Stock Exchange: SPOT). Spotify’s stock has lost its footing in a major way, dropping around 80% from peak to valley. In 2021, it was hard to even imagine such a dominant player in the industry suffering a massive decline. As Spotify takes on its battle with Apple (NASDAQ:AAPL) for next-level streaming audio supremacy, the market thinks it’s Spotify that stands to lose.
In fact, it is a battle between David and Goliath, and right now, Goliath seems to have a bit of an advantage. Even if the worst of the margin pressures is behind Spotify, the environment remains inhospitable. I remain neutral on SPOT’s actions.
Spotify may not have the packaging powers of Apple. Also, it could be difficult to differentiate yourself from rival streamers. In any case, I don’t see streaming as a winner-take-all market. There is plenty of room for innovation in the coming years. Given this, there are many angles Spotify can take to reignite growth.
With 2022 over, all eyes will be on how Spotify plans to regain its footing to push higher. To be sure, the company has clashed with the tech titan and bitter rival Apple in recent years, and in recent weeks the Swedish broadcaster has been calling on regulators to take further action against Apple for “unfair” practices.
Whether or not the regulators answer Spotify’s call, Spotify needs to do everything in its power to put itself in a better place (pardon the pun!). Fortunately, I think he has levers that he can handle for years to come.
Apple’s service package has been the “one” for iPhone users
Undoubtedly, Apple’s Apple One bundled service subscription includes its music streaming service Apple Music along with various digital offerings. With news, streaming video, cloud storage, fitness, mobile gaming, and a growing lineup of other services (let’s not forget iCloud+) all rolled into one nice package, Apple still has one of the most impressive service packages around. and valuable that exist. most rivals can’t compare.
Even after Apple’s recent service price increases, you still have the package that makes the most financial sense for those within the Apple ecosystem. Looking ahead, I think the continued push from Apple’s services could put even more pressure on digital service providers like Spotify, which don’t have the benefits of bundling.
No doubt, Apple is known to keep its best features and services for those who own its devices. Apple Music and other services work best on an iPhone, iPad, or Mac. By not catering to non-Apple users, however, the company has essentially closed the door on a pretty significant market.
Looking ahead, Apple seems ready to take its services business to the next level by offering to users who may be outside of its ecosystem.
The tech giant recently opened its doors to Windows users, with TV and music apps now available from Microsoft (NASDAQ:MSFT) Operating system. Also, Apple Music is now available for Xbox gamers to enjoy their favorite songs.
In fact, Apple services are no longer just for Apple users. By opening the doors, Apple services stand to gain big, perhaps at the expense of other service providers like Spotify. Plus, non-Apple users who enjoy fancy services like Apple Music may even consider switching to iPhone when it’s time to upgrade. In fact, Apple has a lot to gain by offering its services to the world.
The playing field isn’t too level for Spotify, with packages doubling in the face of an economic downturn. in a previous pieceI suggested that Spotify acquire its way to a package, but even without an acquisition or merger, Spotify still has tools to help turn the tide in your favor.
Potential wildcard breakthroughs in AI could act as longer-term tailwinds for the streaming audio industry. With a trove of user data and plenty of algorithms that know how to personalize the listening experience for users, I’d look to Spotify to start flexing its AI muscles to help set itself apart.
Is Spotify Stock a Buy, According to Analysts?
Going back to Wall Street, SPOT’s stock is presented as a moderate buy. Of the 19 analyst ratings, there are 10 Buys and nine Holds.
He Spotify average price target it is at $114.44, which implies an upside potential of 14.4%. Analyst price targets range from a low of $87.00 per share to a high of $175.00 per share.
Food to go
As the year progresses, it’s important for Spotify to make progress on the margin front (last quarter gross margins stood at a mere 24.7%). After all, it is what the market wants in a world of higher rates.
Broadcasting is not known for its generous margins, and management stated that 2022 could see the worst for advertising gross margins. Pressure on the advertising business and big spending (think contract renewals) are notable margin drags that Spotify will steer clear of. It will be interesting to see how Spotify can improve profitability prospects while continuing to invest in initiatives to stand out from the rest.
