Post Spotify’s (SPOT-NYSE) Q1/18 earnings report and Q2/18 guidance, we have updated our Spotify subscription valuation model. Our target price is based on a relative valuation versus Netflix, SiriusXM and Pandora. Our model has a multiple r-squared of 0.997 and p-values for both factors of under 0.09. We value Spotify at $104/share. The actual function calculates the market capitalization,which is based on 3x CLTV TTM + 44x TTM CLTV added.
Our updated model now better accounts for a profitable but slower growing userbase at SiriusXM as well as tempering some of the quarterly volatility in TTM CLTV added for Spotify and Pandora. The volatility associated with TTM CLTV added for Spotify and Pandora is largely the result of gross margins stabilizing from new deals with music labels.
Adjusted gross margin was in-line with our forecast after adjustments. This was largely the product of having strong visibility on historical trends in subscriptions and premium ARPU. Premium ARPU was €4.72 in Q1/18, down 14% Y/Y, however, the company stated it does not expect to see a fluctuation of larger than €0.15 between any two quarters this year.
Spotify opted not take questions from analysts and stopped releasing churn and content hours watched. Churn was eventually provided after a question from a sell-side analyst (dropped to a 4.7% monthly average), in-line with our estimates.
Source: Perspectec and Thomson Reuters
Spotify (SPOT-NYSE)
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This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person. Please refer to Persepctec Inc.’s terms of use disclosure and privacy policy https://perspectec.com/term_of_use
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HOLD/NEUTRAL |
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SELL |
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For the purposes of complying with NYSE, NASDAQ and all Self-Regulatory Organizations, Perspectec Inc. has assigned the following rating system BUY, HOLD/NEUTRAL, SELL for the securities which are the views expressed by an analyst, Independent contractor, and or an employee of Perspectec Inc. The information and opinions in these reports were prepared by Perspectec Inc. or an analyst, independent contractor. Though the information herein is believed to be reliable and has been obtained from public sources believed to be reliable. Perspectec Inc. makes no representation as to its accuracy or completeness.
