Music Streaming Battle: Spotify Vs. Apple Music
As of Nov. 30, 2018, Spotify shares trade at $136, up just 3% of their initial price of $132 per share when they made their debut back in April. Spotify ended its first day of public trading with each share up 9%.
Although the stock price had bullish momentum in July when the price rocketed to $198.99, along with the overall market downturn over the last couple of months, shares have dropped sharply, reaching an all-time low earlier this month. Rival music streaming services such as Pandora Media has seen significant stock appreciation in 2018 (all before its announced acquisition).
Two factors have led Spotify to end 2018 right around where it started in April which is meeting expectations and strengthened competition. Delving into this deeper, Spotify's quarterly earnings results throughout the year were mostly in line with analysts’ expectations. It consistently prevailed on revenue results, although guidance for the second quarter provided in May helped take off the pressure for July's report. Spotify's user growth remained somewhat consistent; however, the mix between ad-supported and premium subscribers proved that the numbers weren't as predictable as they thought.
The first three earning reports Spotify received as a publicly traded company was reasonably close to the analyst's expectations -- solid user and revenue growth with substantial gross margin expansion. It shows now that Spotify's stock price is up as much as the overall market seeing as it hasn't adequately over or underperformed. For reference, the S&P 500 index is up nearly 7% of the year.
Strengthening in competition is the second factor to lead Spotify to end at the price it started at. Spotify has witnessed some of its biggest competitors in the music streaming business gain considerable strength since the company made its public launch but does this mean Spotify shares will continue on the rise?
Apple Music outperformed Spotify and was named as the largest premium subscription music service in the States over Summer. While the United States makes up the majority of Apple's market (due to having a relatively high share of the smartphone market), it continues to grow rapidly internationally. Management of Apple states that it believes it has more subscribers than Spotify in Canada and Japan.
The growth of Apple will continue to be a long-term concern for Spotify. However, Spotify does have a competitive advantage; their user base which provides excellent data to make an advanced listening experience. The use of data refines its user interface and create algorithmically generated playlists. Spotify is also reliant on user-generated playlists - the more users mean more playlist options to entice newcomers.
Several moves by Pandora are intended to put pressure on Spotify. Pandora has not only taken steps to improve its premium subscription and what they offer, but they have also managed to sell itself to Sirius XM, an agreement took place in September that will create the largest audio entertainment company in the world.
With the size of both company's ad-supported listener base, it will draw significant advertisers. Pandora has established itself as an alternative to the traditional radio; this shows extreme potential for synergies between Sirius XM and Pandora. This may potentially put pressure on Spotify's ad-supported listeners; this is an area where the streaming leader slows the competition considerably. If Spotify's subscriber growth slows down, they will have to increase monetization of its free listeners; a combined Sirius XM and Pandora could make this far more challenging.
To conclude, Spotify has met analysts’ expectations throughout its first three quarters as a public traded company, but this could all change due to intensifying competition in the space leading to lower market expectations. As a result of this, Spotify shares have dropped down to levels - comparable with their initial position in the market before the company's market debut....