Last week, Spotify was upgraded to BUY by several analysts, all of whom predicted that the stock price would rise to above $200 ahead of the company’s next earnings report. But not everyone is so bullish — especially as soggier news comes in.
Now, Pivotal Research Group has issued a downgrade to the stock’s performance, citing competition from Apple Music and other streaming options.
SPOT is down to $187.30 at the time of writing, which is slightly lower than the estimates given when analysts upgraded the stock to BUY last week. So what’s changed in the past week to make the stock go from a BUY to a HOLD?
According to Pivotal Research, Spotify’s growth has slowed substantially in the face of active competitors and churn from the company’s subscribers. A substantial number of those subscribers are opting out of premium content in favor of its free, ad-supported option, with one estimate pegging churn at 16%.
The research group also delved into Google search traffic, and found that searches for the streaming platform are ebbing. That could mean that Spotify is achieving its marketing aims without Google’s help, or that the platform is already nearing its consumer saturation point. Perhaps the worst possibility is that people are searching for something else like ‘Apple Music,’ though a deeper SEO analysis might be required before any conclusions are made.
Either way, the firm has also downgraded its projection for new subs for the fiscal 2018 period, stating that it believes SPOT will hit 92.5 million subscribers.
That’s slightly down from the original estimate of 93 million.
Pivotal’s analyst estimate seems in line with a newer batch of projections for the company, with fierce competition among music and video streaming services viewed as a bigger deal. A new report that looks at the composition of Spotify’s premium subscription discovered that only 55% of subscribers had the $9.99 per month subscription plan, 24% had the family plan, and 12% the cheaply-priced student option. The Spotify/Hulu bundle on offer only made up 9% of premium subscribers.
The company also lags behind other streaming music services’ growth reports in the United States.
For example, Apple Music achieved a 5% subscriber growth rate in the US, while SPOT’s growth was only 2% in the same period. However, the company outperformed Apple Music globally with 7% growth worldwide.
The company’s churn rate is much higher than other music services too. That includes the aforementioned estimate of 16% of US subscribers deciding to cancel their premium plan. That rate is much higher than the global churn rate reported. Analysts believe the company’s free ad-supported option is the primary factor for churn rates, with formerly premium subscribers often deciding to lower their subscription to the ad-supported model.