I closed my complete Spotify position yesterday at a price of approx $240.
Here are my key reasons
- Limited upside potential. Even bullish scenarios don’t hold a sufficient amount of upside and I do not see a clear way how the stock could double within the next years if it is not deviating from any sensible valuation metrics. Limited upside also means that necessary margins of safety are missing.
- Strong changes at Spotify. While the market applauded the latest rounds of layoffs, I don’t like that the whole management did not support this change, and Spotify’s CFO is leaving as a consequence. Imo the mood of the earnings call was subdued, and strong changes with a focus on “relentless resourcefulness” could pose a risk for Spotify down the road, especially given that management is not experienced with that kind of change.
- Uncertainty about interest rate trajectory. A growth stock could be valued lower in a “higher for longer” environment.
- Better investment opportunities. Comparing opportunities I currently view, e.g., Meta, Upwork, or eventually Volkswagen, as more interesting than Spotify.
Next steps
While I took a step back, I will continue to reflect on the decision and compare different allocation options. My most important open long-term key question for Spotify is the amount of pricing power they have.
I also want to observe if all operation continue to run smoothly in the next quarters with reduced spent levels.
Button line: I believe, the investment case could still work at current levels but is significantly more complicated than the same investment at $100. I am therefore not sure if it would be worth the time to continue studying necessary new elements and taking the investment risk if there are more low hanging fruits.