Spotify Technology SA (SPOT, Financial) recently experienced a daily gain of 7.46%, complementing a 3-month gain of 23.24%. However, with a Loss Per Share of $4.05, investors are left pondering whether the stock is modestly overvalued. This article aims to explore the intrinsic value of Spotify Technology SA using the GuruFocus Value analysis, providing insights into whether the current market price reflects the company's fair value. Continue reading for a detailed valuation assessment.
Company Overview
Headquartered in Stockholm, Sweden, Spotify Technology SA is a leader in the global music streaming industry with 489 million total listeners. The company operates on a dual revenue model, with 87% of its 2022 total revenue stemming from its premium subscription service, and the remaining 13% generated by its ad-supported service. With a market cap of $37.90 billion and sales reaching $13.60 billion, the comparison of its stock price to the GF Value provides a foundational perspective on the company's valuation.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line serves as a benchmark for fair trading value. When a stock's price significantly exceeds the GF Value Line, it may be overvalued, suggesting a potentially lower future return. Conversely, a price below the GF Value Line could indicate a higher future return. Currently, Spotify Technology SA's stock is considered modestly overvalued at a price of $194.17 per share.
Given this valuation, investors should be cautious, as the long-term return of Spotify Technology SA's stock might be less than its business growth trajectory.
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Financial Strength
Before investing, assessing a company's financial strength is crucial. Spotify Technology SA's cash-to-debt ratio stands at 2.15, which is lower than 63.01% of its peers in the Interactive Media industry. This fair financial strength rating of 6 out of 10 suggests that the company is in a stable but not exceptional financial position.
Profitability and Growth
Consistent profitability is a hallmark of a less risky investment. Spotify Technology SA, however, has faced challenges, with a 12-month revenue of $13.60 billion but a Loss Per Share of $4.05 and an operating margin of -4.73%. This performance is weaker than 60.61% of competitors in the Interactive Media industry. The company's profitability rank is 4 out of 10, indicating poor profitability.
Growth is a vital component of valuation. Spotify Technology SA's 3-year average annual revenue growth rate of 15.2% is commendable, yet its EBITDA growth rate of -402.9% is concerning, ranking lower than 99.49% of industry counterparts. The company's growth prospects are therefore mixed.
ROIC vs. WACC
Evaluating a company's Return on Invested Capital (ROIC) against its Weighted Average Cost of Capital (WACC) can provide insight into its profitability. Spotify Technology SA's ROIC of -18.33% is below its WACC of 13.04%, indicating that the company may not be creating value for shareholders. This is a critical consideration for investors looking at the long-term potential of Spotify Technology SA.
Conclusion
In conclusion, Spotify Technology SA (SPOT, Financial) appears to be modestly overvalued based on current assessments. The company's financial condition is stable, yet its profitability raises concerns. With growth that is less impressive compared to industry standards, potential investors should proceed with caution. For a deeper understanding of Spotify Technology SA's financials, you can explore their 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
