![]() ![]() We don't believe it is a question of whether Spotify will be able to increase subscriber growth instead, we believe it is a question of whether the company can generate lasting profitability. While we share the company's belief that subscribers will grow, we believe this growth will NOT offset materially higher spending in 3Q22. While subscription growth this quarter seems like a major win compared to the subscription slowdown in 1Q22, we do not believe the positive momentum could last. For 2Q22, Spotify reported a total of 433M users across both its ad-supported and premium accounts - an 11 million increase compared to its 422M in 1Q22. ![]() Therefore, investors should use any rally in the shares to exit their positions Subscription growth remains challengingÄespite Spotify's better-than-expected 2Q22 report, we still recommend investors sell shares. ![]() We believe the company must spend heavily to keep up with the competition, and profits will likely remain elusive in the near term. We also don't believe the company has the balance sheet to keep up with the competition meaningfully. We believe Spotify has to deal with churn due to inflationary pressures, turbulence in Europe and Asia, and currency issues. While Spotify built an excellent music business, we believe the company won't be able to generate profits soon. Consistent with our bearish April piece, Spotify is trading at about $87, dropping 71% below its 52-week high and 43% below when we first wrote about it. We are still bearish and remain sell-rated on Spotify ( NYSE: SPOT). ![]()
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