BUY - rate is expected to increase, i.e. the first currency gains value against the second currency.
SELL - rate is expected to go down, i.e. the first currency is expected to lose value against the second currency.
Spotify is a major tech company the revenue stream of which does not depend solely on ads. Its business model quite innovative, Spotify produced a solution to the rampant piracy dilemma surrounding the music business.
It is an on-demand music streaming service, one that serves hundreds of millions of subscribers all over the world, while generating billions of dollars in revenue for rights holders.
To gain a proper grasp of why Spotify shares are valued as they are, you need to know how the company makes its money.
How does Spotify make its money?
Spotify negotiates with music labels and makes their property available for streaming. It pays the labels every time a subscriber listens to a song. The labels then pass on the earnings to their artists.
The service is a subscription-based one. That’s how the company collects payments from its users.
Subscription is only the premium tier revenue mechanism of the operator though. It also runs a free, ad-supported tier.
The free version of the service makes all songs in the Spotify catalog available for listening. Free songs are interrupted with ads though. The mobile version of the service features still more restrictions on the free tier.
In classic ad-supported business model manner, advertisers pay Spotify for exposure on its network.
In its first earnings report, in Q1 of 2018, Spotify announced that it had generated some $1.36 B in revenues. Company shares took a 5% dive in the wake of the announcement.
Online music streaming is by no means a new concept. How did Spotify manage to upend this industry then?
The answer lies in the technology it employs.
Spotify’s technology – the ingredient that makes it a winner
No latency and delays is obviously the recipe of success in the streaming business. Spotify really excels at this.
The solution was the use of cached songs (stored temporarily on the computer of the user who downloaded them) and the sharing of this cache with other users within one’s proximity, through a social network structure. This way, the servers of the service provider are never overloaded.
What moves the needle on Spotify stock?
The promise of Spotify is great at this point. The potential market that it can eventually cover is truly massive. It has only just begun scratching the surface.
Netflix is often touted as a model for the way Spotify share value may evolve in the future. The willingness of Netflix’s users to pay a premium for the service has made it clear that the same road is open to Spotify too. What’s more, some analysts have argued that Spotify can bring a much larger dataset to bear in regards to extras such as playlist personalization.
What can potentially bite into Spotify’s value as an investment is competition. The operation goes up against tech heavyweights such as Apple, Amazon and Pandora. Its grip on the market is currently iron-clad, but with competitors like these, that may well change in the future.
BUY - rate is expected to increase, i.e. the first currency gains value against the second currency.
SELL - rate is expected to go down, i.e. the first currency is expected to lose value against the second currency.