Marsico Capital: Spotify Technology

Spotify Technology is the global leader in digital music consumption and has transformed the way in which people access and enjoy all forms of audio entertainment. The company provides music streaming services and has over 300 million monthly active users in 92 countries. Spotify currently generates the large bulk of its revenue from monthly subscription fees, but we think that this is just the beginning of the way in which the company can monetise its substantial user base. We believe Spotify mirrors Netflix prior to gaining appreciation from the investing community, and that we are on the launch pad ready for the stock to take off.

We view the stock as particularly attractive as we believe that there are a multitude of growth drivers for Spotify that will materialise in the future, particularly in other audio formats.  The company has recently made large investments in podcasts through exclusive deals with Barack and Michelle Obama, Joe Rogan, and others.  We view this medium as a huge opportunity given the share shift away from terrestrial radio consumption.  In 2020, annual advertising revenue for radio is over $50b and we see this as table stakes for Spotify to capture given 60 million users on the platform consume podcasts already.  This potential leg of growth from advertising will diversify the revenue base, leading to material outperformance for the stock.

Potential risks to the stock stem around competition, particularly from Amazon and Apple. These formidable competitors have launched similar services to Spotify’s for a much lower cost. These forces could reduce Spotify’s growth through either less overall engagement or inability to maintain their pricing structure.  We don’t subscribe to this theory, as we believe that Spotify’s relentless innovation and sole focus on audio will keep them well ahead of any competitive offering.

This information has been prepared and provided by Marsico Capital. To the extent that includes any financial product advice, the advice is of a general nature only and does not take into account any individual’s objectives, financial situation or particular needs. Before making an investment decision an individual should assess whether it meets their own needs and consult a financial advisor. This stock pick was published on 15 October 2020 and is subject to change.