Spotify reached a new all time high on the New York Stock Exchange as it steps up in the Indian and South Korean market, while subscriber growth is still outpacing the company's premium revenue growth due to the expansion into these markets. Raising more questions about the economic impact of streaming on the music industry.
Spotify has reached a new all-time high on the New York Stock Exchange last week as it steps up in the Indian and South Korean market. On January 8, the streaming giant’s stock reached $354.60, and closed at $353.48, up 7% from the closing price the day before and up 12.2% for the week. At last Friday’s high, Spotify’s value rose to a staggering $66.1 billion.
Spotify’s stock is valued way above what many analysts have assessed it to be worth, according to market data company Refinitiv (via Billboard). The median analyst price target lists the DSP’s stock at $299.46, which is 15.6% below Friday’s high price. It's not clear what exactly triggered the increase but it seems like many factors contributed to the stock increase.
It could have to do something with Bank of America recently increasing its Spotify stock target price from $357-per-share to $428, or the company’s aggressive expansion of its podcast business.
But another factor that could have got investors excited about the stock could be Spotify's launch in South Korea. After various rumours over the past couple of years, the company has finally officially announced that its service will be rolled in the world’s sixth-largest music market in the first half of 2021. As one of the fastest-growing major music markets in the world, a press release states that South Korea
“is key for Spotify in its mission of giving a million creative artists the opportunity to live off their art and billions of fans the opportunity to enjoy and be inspired by it”.
Spotify reported that since it debuted its K-pop playlist in 2014, its listeners have streamed more than 180 billion minutes of the genre and added K-Pop tracks to more than 120million playlists. South Korea will become Spotify’s 93rd active market, and is only the latest expansion in the company's move on the world stage.
In February of 2020, Spotify already launched in India - where the number of active internet users is estimated at over 400 million - with now a new version of its Premium tier in India called Premium Mini to compete with other players in the Indian market, such as JioSaavn and Gaana, with daily and weekly pricing options.
The expansion into world markets could be a factor into Spotify's stock increase, but about the quarter of Spotify's stock could be reflected on the New Yorks Stock exchange composite 3.3% gain, while the remainder could stem from a belief that Spotify's growth-over-profits strategy will finally give way to a growth-with-profits one.
In company's Q3 results from October, Spotify revealed that its premium subscriber growth (+27%) was outpacing its premium revenue growth (+15%) across the quarter. This means that in Q3, the average revenue paid each month by its Premium subscribers around the globe(ARPU) continued to fall. Spotify's ARPU of €4.19 in Q3 was down 10% year-on-year on the €4.67 reported in Q3 2019, which was itself down 1% compared to the same quarter in 2018.
In October Spotify stated that outside of currency effects, “product mix accounted for the majority of the ARPU decline, followed by geographic mix”. In layman's terms, the average amount paid by Spotify Premium subscribers worldwide is being reduced by promotional deals, family plans, telecom bundles and international pricing.
In a statement by the company about the South Korea expansion;
“Spotify wants to help accelerate the growth of Korea’s entire music streaming ecosystem, benefitting artists, labels, distributors and fans,”
But Billboard already stated that limited pricing experiments also suggested that "Spotify might raise prices, and improve profitability without securing better terms from rights holders.". Governments are already examining the economic impact of streaming on the music industry. DCMS Committee Chair Julian Knight MP said on the matter;
“While streaming is a growing and important part of the music industry contributing billions to global wealth, its success cannot come at the expense of talented and lesser-known artists,”
Time will tell what music streaming will mean for the future of the music industry.