Market Overview

Analyst Speculates Spotify Could Be Worth $70 Billion In 3 Years

Share:
Analyst Speculates Spotify Could Be Worth $70 Billion In 3 Years
Related
8 Biggest Price Target Changes For Friday
Spotify Closes In On 200M Monthly User Milestone, Despite Apple, Amazon Threats
SoftBank Puts Another $3B In WeWork (Seeking Alpha)

Streaming music provider Spotify was reportedly worth more than $19 billion at the end of 2017 and could be worth as much as $70 billion in just three years, according to MKM Partners.

The Analyst

MKM Partners analyst Rob Sanderson commented on Spotify's upcoming initial public offering. MKM did not initiate coverage of Spotify and is not participating in the company's listing. 

MKM: Profit Is Possible

One of the biggest misconceptions among investors is that digital music services like Spotify can't make money and the platform is at the mercy of music labels and music publishers, Sanderson said in a research report.

"We think the growing friction within the industry is between artists and labels," the analyst said. "Labels continue to take the large majority of economics while their value-add is diminishing in a streaming world." 

Spotify was estimated to have paid 17 percent of the music industry's total revenue in 2016, according to MKM Partners. An estimated $826-million year-over-year increase in payments to rights holders accounted for more than 90 percent of the year-over-year increase in total industry revenue. In 2017, the estimated $3.2 billion in royalties paid by Spotify represented nearly 20 percent of total industry revenue, the analyst said. 

Related Link: Apple Music: How Does It Compare To Spotify?

The Path To $70 Billion

MKM estimates Spotify's net profit in 2022 at $2.7 billion. Spotify's stock should be able to carry a 25x forward P/E multiple, if not higher, as the earnings growth story carries momentum, Sanderson said. Applying the 25x multiple would yield a $70-billion market cap for Spotify around 2021. 

Spotify will continue to take advantage of the fact that digital music subscription market remains "relatively small," at around $9 billion in 2017, the analyst said. The total addressable market for Spotify in the years ahead is in the billions, he said — a reasonable assumption given Facebook's 2-billion user base, YouTube's 1.5-billion user base and Instagram's 800-million user base.

In the more than 60 countries where Spotify operates, there are 1.3 billion payment-enabled smartphone users and this figure could grow to 1.6 billion by 2021, Sanderson said. Countries where Spotify has yet to operate represent another 1.4 billion potential clients with payment-enabled smartphones by 2021. 

Spotify's business could benefit from adjacent opportunities over time, including ticketing and artist promotions, according to MKM. The company is "well-positioned" to disrupt these and other new business ventures over time, which would also serve as a "powerful differentiator" for Spotify's Premium subscription members, Sanderson said. 

Related Link:

Spotify Could Be A $100 Billion Company

Latest Ratings for SPOT

DateFirmActionFromTo
Nov 2018Wells FargoMaintainsMarket PerformMarket Perform
Nov 2018JP MorganMaintainsOverweightOverweight
Nov 2018BarclaysMaintainsOverweightOverweight

View More Analyst Ratings for SPOT
View the Latest Analyst Ratings

Posted-In: MKM Partners Rob Sanderson Spotify Spotify IPO Streaming musicAnalyst Color Top Stories Analyst Ratings Best of Benzinga

 

Related Articles (SPOT)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
LXFTKeyBancDowngrades0.0
CPAImperial CapitalDowngrades68.0
PRMWImperial CapitalInitiates Coverage On18.0
TGTKeyBancInitiates Coverage On110.0
QCOMMorgan StanleyUpgrades0.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Mid-Morning Market Update: Markets Mostly Higher; Ciena Profit Tops Expectations

Are Markets Turning Deaf Ear to Trade Fears? Benchmarks Up In Early Going