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Spotify Plunges to a Post-IPO Low of $146.08 — Time to Panic?

Posted on May 16, 2018 by Scorpion
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Shares of the world’s most popular online music streaming service were rattled on October 24th as the Dow Jones Industrial Average lost more than 600 points.

Spotify stock reached $146.08 by the time Wall Street closed an abysmal session on Wednesday.  The slide was underscored by hints of dangerous political instability in the United States.

To get an idea of how spotty things have been for SPOT in recent weeks, its historical high of $196.28 was reached in July, but shares are now below their IPO level in April.

For Spotify’s paper billionaires and millionaires, the quick calculation is depressing.  Since the late-July peak, Spotify has shed roughly $9 billion in market cap.  But that’s actually comforting news for majors Sony Music Group and Warner Music Group, both of whom have divested substantial or complete portions of their post-offering stakes.

Universal Music Group, on the other hand, has held onto its substantial shares.

It should be noted that Spotify is one of many that have been affected by an overly cautious sentiment, not just on Wall Street but also around the world.  One stressor is a global trade war started by Donald Trump, one that has caused investors to take a good look at the American economy.

The American economy has arguably been overheating since around 2015, thus creating a skyrocketing effect on many stocks.

Investors are clearly spotting weaknesses in the market, but Spotify may not be one of them; in fact, Benjamin Swinburne of Morgan Stanley is overly bullish on SPOT, a stock he believes could reach $225.

The rationale presented by Swinburne is based on the reality of music streaming around the world, which has been on an upward stream, so to speak, since tech investor Sean Parker invested more than $11 million back in 2010.  That was one of several incredibly smart bets, and other investors want to experience similar returns.

Spotify has also been looking at emerging markets where consumers are already hooked on MP3 playlists and FM radio on their smartphones. We’re talking about markets such as Brazil, Mexico and India; these are countries with sizable populations that are glued to their smartphones.

Aside from the potential that these markets represent, Swinburne is one of several top analysts who are confident that label renegotiations aren’t a major concern.  That cuts against sometimes hysterical reporting on the matter, though both sides have substantial leverage and mutual financial interests.