Rowan Street Capital, a self-described “private investment fund focused on long term ownership of a few ‘extraordinary’ businesses,” is maintaining an optimistic position on Spotify stock (NYSE: SPOT) even as shares are threatening to dip beneath $80 apiece for the first time in company history.
Seven-year-old Rowan Street doubled down on its commitment to Spotify stock in a newly issued Q3 2022 letter. SPOT was worth $82.13 when the market closed today, reflecting a decrease of 4.43 percent from Monday’s day-end value and a more than 66 percent decline since 2022’s beginning.
Before closing, Spotify stock on Tuesday touched a record low of $80.51 per share. The Stockholm-headquartered company hasn’t experienced a sub-$80 per-share stock value to date, and SPOT was worth well in excess of $100 at the time of (and in the months following) the business’s April of 2018 IPO.
After taking aim at perceived monetary-policy shortcomings and the next 12 months’ anticipated market volatility, Rowan Street execs made clear their belief “that the companies that we own in our portfolio will be worth significantly more than what they are trading for today” in the coming three to five years.
“For example, let’s look at our top holding, Spotify,” Rowan wrote. “It is estimated to generate almost 12 billion euros in revenues in 2022, with gross margins of over 3 billion euros. The whole company is currently selling for only $17 billion.”
And following a highlight of its ambitious projections for Spotify’s user count in half a decade (one billion) and annual revenue ($25 billion) – with a possible “boost from advertising revenues in podcasting and other audio” segments – Rowan dug into the positive outlook’s broader significance amid the present market turbulence.
“We estimate that by 2025, Spotify could earn over $3.5 billion in adjusted operating profits. If we placed just a 20x multiple on that, which could prove quite conservative for a company growing 20+%, it would give us a $70 billion valuation (4x from the current market price).
“Now, the market may not reflect the value creation of Spotify over the next 6 months or even a year, but over the next 5 years the odds are the stock will jump significantly higher to reflect the underlying value creation at the company,” the entity finished.
Moving forward, it’ll be worth seeing whether this and similar assessments of Spotify stock end up being accurate.
Of course, all manner of analysts issued bullish SPOT forecasts when the stock was riding high at north of $300 per share (and almost $400 for a time), but many have since adopted comparatively bearish positions and/or cashed out of millions in Spotify stock.
Nevertheless, Rowan Street isn’t the only firm that’s still long Spotify, into which Daniel Ek poured another $50 million over the summer. Evercore reiterated its upbeat view of the streaming giant last month, for instance, and The Guardian Fund remains bullish about SPOT owing in part to the company’s perceived monetization potential.