Spotify doesn’t deserve the identical therapy as different streaming corporations, in accordance with a rising variety of folks on Wall Avenue. “I believe that’s the most attention-grabbing identify that individuals have fully written off,” LightShed Companions’ Wealthy Greenfield mentioned final week on CNBC’s ” Squawk Field .” Shares of the streaming firm are down roughly 50% this 12 months, as traders, aware of an period of rising rates of interest, dumped shares of tech shares and different development names. Audio chief Nonetheless, some traders say that Spotify shouldn’t be tarred with the identical brush as Netflix or different streaming corporations which have cratered this 12 months due to weak person numbers. These proponents say Spotify has cornered the market on music worldwide, and will seize extra of the entire audio market because it expands into podcasts and audiobooks. “They’ve little or no competitors. They dominate the class,” Greenfield mentioned. “Sure, it is a low base, however they’re definitely rising sooner than friends.” These rivals embody well-heeled opponents similar to Apple, Amazon and Google-parent Alphabet, all of whom have made forays into streaming music and podcasts, and will leverage their companies to assert extra market share. However, Spotify has maintained its main place. Final week, the streaming firm beat income expectations in its second quarter earnings , and reported that it added 433 million month-to-month lively customers, which is nineteen% larger year-over-year, and 5 million above steerage. In the meantime, paid subscriber development expanded by 14% year-over-year to 188 million. Shares surged following the quarterly earnings report. “Whereas the macro surroundings continues to current uncertainty, we’re presently not seeing any materials affect on our expectations for person or subs development from the financial downturn, Spotify CEO Daniel Ek mentioned on the newest earnings name. “Actually we’re seeing a number of markets trending forward of our forecasts.” “We’re assured in our ambitions to get to 1 billion customers by 2030, whereas on the identical time we’re additionally targeted on enhancing our gross margins and persevering with to generate optimistic free money move,” he added. Morgan Stanley analysts count on that Spotify can maintain a larger than 30% market share in streaming over time, in accordance with a latest be aware. “They’re the chief in that international TAM,” mentioned Evercore ISI’s Mark Mahaney, referring to the entire addressable market. “We have run survey work on Spotify for years, and they’re the main participant on each Android and Apple units. So, there are extra individuals who subscribe to music or be part of music on Apple telephones utilizing Spotify than really Apple Music.” Significant margin enlargement To make certain, different traders are vital of Spotify, questioning whether or not the enterprise can ever obtain sturdy income , particularly as recession issues loom and rates of interest rise. “Whereas we imagine there stays materials person development left for Spotify we spotlight that many traders query whether or not Spotify will ever be capable to generate important lasting profitability,” wrote Pivotal’s Jeffrey Wlodarczak in a July 28 be aware. The analyst has a maintain score on the inventory. The streaming firm has to take care of highly effective music labels that might renegotiate offers and restrict positive factors in Spotify’s income, in accordance with Pivotal. 9 out of 10 songs streamed on Spotify are owned by simply 4 music corporations, the report mentioned. On the identical time, because it went public in a direct itemizing in 2018, Spotify has did not broaden its low gross margins, at the same time as its income base has doubled, in accordance with Evercore ISI’s Mahaney. Gross margins for the corporate declined to 24.5% within the three-month interval ending in June, down from 24.9% within the first quarter of 2022. They beforehand reached an all-time excessive of 28.1% within the second quarter of 2021. Nonetheless, at Spotify’s June Investor Day, CEO Ek famous that gross margins from music are “steadily climbing,” at the same time as they’re dragged down by the corporate’s podcast investments. Since its public debut, Spotify has gone on a spending spree, snapping up podcasting networks similar to Gimlet Media, in addition to the rights to stream Joe Rogan’s podcast. “There’s two potential explanations for this decrease gross margin end result,” Ek mentioned on the occasion, in accordance with a FactSet transcript. “One may be that Spotify simply is not that good of a enterprise. And the opposite is that we’re investing behind the energy of our enterprise to make the enterprise larger, stronger and extra resilient; and I’ll share with you in the present day that the music enterprise is doing a lot better than you suppose.” For Evercore ISI’s Mahaney, because of this there is a “gross margin inflection level” coming for Spotify, as the corporate begins to tug again on podcast investments, and because it continues to realize scale in its promoting income enterprise. “If that is true, then gross margin ought to broaden subsequent 12 months,” mentioned Mahaney.