LY Med's video: Joe Rogan Exclusive Spotify Deal and Investing In Spotify Investing Rx Ep 13

Thanks for tuning in to another episode of Investing Rx. In this episode, we are going to take a look at the music streaming and podcast market and talk about whether or not Spotify is a good investment right now. Music streaming and pocasts have absolutely exploded in the past few years. Most people now get their music and podcasts from streaming services like Spotify, Pandora, or Apple music – in fact, 80% of music revenue came from streaming services with only 10% from actually buying CD or buying it digitally. This is a massive shift. Same kind of explosive growth for podcasting. For multiple reasons, such as low barrier to make a podcast, free to make and chance for ad revenue. As a listener, you get a massive library of choices to fill your day or commute. A couple of days ago, news broke that one of the largest podcast, The Joe Rogan Experience signed an exclusive deal with Spotify. So one of the largest podcasts with one of the largest music streaming players – what could go wrong? So lets take a look at the deal, and talk about whether or not Spotify is a good investment at this time. Disclaimer: I'm not a financial advisor – don’t listen to me for financial advice. Spotify is the dominant player in the music streaming biz, with about 1/3rd of the market share, with Apple trailing it. It also has the most paying users and premium users have risen 30+% YoY. However, its not the dominant player when it comes to podcasting, but this is changing thanks to the aggressive moves like buying the rights to the Joe Rogan podcast or like buying The Ringer – which makes sports podcasts. But is Spotify a good investment? Lets start with the first question – is Spotify a fundamentally good company and we start wit the balance sheet. There is a lot to like here- we talked about consistent revenue and net income increase yoy with a growing user base. Most of their expenses come from operating expenses and they have very little if any long term debt. But there are some things I don’t like. Because of their massive expenses and investments, Spotify has historically been UNprofitable. They have been so consistently unprofitable, that when they do turn a profit, it makes news. That’s not to say strike it right off the bat – most tech companies, like Amazon, in the growth phase are unprofitable – and many judge it heavily on its POTENTIAL for profit in the future. The next thing I look at is the moat. You want a company with a large moat – someone that can withstand competition and continue to thrive. Companies with large moats have: Name recognition/Brand monopoly – like Google. When we want to search something, we say google it. Competitive advantage - Like Amazon's distribution and shipping network, same day delivery. Difficulty switching/high switching cost: This is like apple products, or Facebook and Instagram, which make it difficult for users to go elsewhere. Now does Spotify have a moat? I certainly like the interface but I'm not married to it. They are trying to change that – I know a lot of us like Spotify playlist, now they are building their podcast market with exclusives and acquisitions. And finally the last question is to ask if the company is trading at a good value. Exponential stock price is not based on fundamentals and not sustainable. Stock prices don’t go up forever, they will revert to their mean averages and make a better opportunity to buy. If you're looking to get into Spotify, it may be a bit more expensive than its worth .