Here I am going to attempt to value the music streaming service Spotify Technology SA.
Spotify offers two ways to stream music. A paid option and a free option with advertisements. Currently Spotify is valued at 26.50 bln. USD. Does this valuation reflect Spotify's intrinsic value?
No, I think long-term Spotify is undervalued. I expect Spotify's valuation to grow to 70 bln. USD in 5 years, barring a severe economic shock, which could lead to a global economic depression. Why? The size of the music streaming market is projected to grow to 45.3 bln. USD in 2026. The digital advertising market, however, is poised to reach 426 bln. USD in 2023. Spotify is active in both segments and I expect it to benefit significantly from the larger size of the internet advertising market. Users, at least the vast majority of them, like free services like Google, Facebook etc. Spotify also offers a free music service. Spotify is a leader in music streaming and I expect even more users to join its free service. What is more, Spotify's revenue is growing by around 30% year on year for the last four reported quarters and this growth, considering that already Spotify is bringing in billions of USD a year in revenues, is staggering. Yes, I know that there is also YouTube, but Spotify is a proven innovator and leader and I expect Spotify to continue harnessing its lead in the music streaming market.
As said, I expect Spotify's valuation to grow to 70 bln. USD in 5 years mainly driven by its free, advertisement based service.
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Petar
Vladimirov Posledovich is not liable for any investment losses incurred
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Petar Posledovich
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