SPOT DECK & REPLAY: CLICK HERE
KEY POINTS
- LONG FOR THE TIME BEING: SPOT has a first-mover advantage with the best competitive advantage in the space; its free tier which is where it acquires most of its subs. SPOT still has runway for subscriber growth despite both elevated market share & churn, but we believe the biggest opportunity will come from taking price. SPOT is also in the early inning of ramping its ad business, which still has considerable runway relative to MAU engagement. Collectively between the two lines, there may be a pathway toward longer-term profitability depending on future op-ex investments. But we actually favor the near-term setup over the longer-term story. Mgmt has neutralized the sell-side by issuing guidance prior to its IPO. In turn, 2018 consensus estimates to date haven't veered outside of SPOT's guidance range, which we estimate was deliberately sandbagged.
- ESPECIALLY SINCE THE BEAR CASE IS A WAYS OUT: The bear case is really just a reality check on the runaway bull case. We're not buying the street conjecture that SPOT is gaining leverage over the Labels since Interactive Music in itself is largely commoditized with limited product differentiation or pricing. We expect SPOT to remain largely hostage to the Labels, which have limited incentive to give further on royalty rates for far more reasons than otherwise, and likely wouldn’t do so without further restrictions on the free tier. However, rate negotiations are probably a moot point until 2021 at the earliest since we doubt any of the stakeholders involved in the Web V proceeding would be willing to shift precedent ahead of deliberations.
Let us know if you have any questions or would like to discuss in more detail.
