Baillie Gifford Becomes Spotify’s Largest Stakeholder, Beating Out Co-founder Martin Lorentzon

Baillie Gifford, a Scottish investment management company, has become the largest stakeholder in Spotify with an 11.82% share. This was disclosed in a filing with the US Securities and Exchange Commission (SEC). Baillie Gifford’s total ownership of Spotify has increased by 2.6 million shares since September 2019, from 19.1 million to 21.7 million. This increase represents 11.82% of Spotify. Martin Lorentzon, the co-founder of Spotify, is now the second-largest stakeholder with 11.59% of the music streaming platform’s stock.

The announcement had little impact on Spotify’s per-share price which largely stayed the same, opening at $148 and closing at $149.15, an increase of only 0.7%. However, the stock has shown a solid recovery in the last four months. From a low of about $112 per share in September 2019, Spotify touched $158 earlier this month, its largest value since October 2018.

Spotify is one of the most popular music streaming services in the world with 248 million monthly active users, out of which 113 million subscribe to Premium. However, the company has faced criticism from investors for not being profitable enough, and from artists for paying inadequate royalties.

The company’s profitability has been called a “pipe dream” by some analysts. Bernstein’s Todd Juenger recently gave Spotify an underperform rating, while an analyst from Evercore downgraded the stock to underperform based on long-term profitability concerns. “For Spotify, material margin expansion likely remains a pipe dream, as rivals operate streaming music services at a loss to the benefit of broader ecosystems and labels act as an oligopoly,” said Benjamin Black of Evercore.

Meanwhile, the game is getting less interesting for major record labels Warner Music Group (WMG), Sony Music Entertainment (SME), and Universal Music Group (UMG), as well as independent label Merlin Records. This is due to a vast selloff of Spotify shares following the platform’s public offering.

There are several reasons why Spotify has been struggling to turn a profit. One of the main reasons is the high royalty rates that it has to pay to record labels and music publishers. In 2018, the company paid out 70% of its revenue in royalties. While the company has been trying to negotiate better deals with record labels, it has not been very successful so far.

Another reason for Spotify’s struggles is the intense competition in the music streaming market. The company faces competition from giants like Apple Music, Google Play Music, and Amazon Music, as well as smaller players like Tidal and Deezer. All of these companies are trying to gain a larger market share, which puts pressure on Spotify to keep its prices low.

Despite these challenges, Spotify has been making some progress in recent months. The company has been expanding its podcast offerings, which has been well-received by users. In fact, the company recently acquired two podcast production companies, Anchor and Gimlet Media, in an effort to expand its podcasting capabilities.

Spotify has also been focusing on expanding its user base in emerging markets, such as India and Southeast Asia. The company has been offering discounted subscriptions in these markets to attract more users. This strategy has been paying off, as the company added 6 million new subscribers in the fourth quarter of 2019 alone.

In conclusion, Baillie Gifford’s recent filing with the SEC shows that it has become the largest stakeholder in Spotify. While the announcement had little impact on the per-share price of the company’s stock, it highlights the company’s struggles to achieve profitability. Despite these challenges, Spotify has been making progress in recent months by expanding its podcast offerings and focusing on emerging markets.

One Response

  1. Teddy

    And a big congratulations for being the one who will lose the most in the end.