Spotify Listener Growth Continues; Margin Expansion May Begin in 2023

Swedish-based Spotify is the world’s leading music streaming service provider. We foresee the fast-growing digital streaming space as becoming the primary distribution platform of choice within the ever-changing music industry. We believe Spotify can benefit from various network effects that will help the firm increase its users and amass valuable intangible assets associated with user data and listening preferences. However, it faces intense competition and has a (mostly) variable cost structure that may limit Spotify’s future operating leverage and profitability. Thus, we do not have sufficient confidence that it will generate excess returns on capital over the next 10 years.