There’s a Monthly Subscription for Everything - InvestingChannel

There’s a Monthly Subscription for Everything



Proprietary Data Insights

Top Internet Content & Information Stock Searches This Month

Rank Name Searches
#1 Alphabet 335,671
#2 Meta 289,906
#3 Twitter 134,009
#4 Snapchat 37,679
#5 Zoom 37,666
#8 Spotify 15,423

It’s Tough Out There

Spotify (SPOT) reported earnings Tuesday. They looked like this: 

  • Smaller-than-expected loss. 
  • Revenue beat expectations. 
  • More impressive, Spotify added 7 million net premium subscribers in Q3, surpassing its guidance of 6 million. 
  • Monthly active users popped 20% to 456 million, also blowing away the company’s guidance. 
  • Even more impressive, ad revenue increased 19% year over year and 7% quarter over quarter to 385 million. This is on par with Spotify’s subscriber growth rates of 22% and 6% over those times.  
  • In Q3, advertising accounted for 13% of Spotify’s total revenue. The company continues to develop this important revenue stream. 

All good. Yet here’s what happened to Spotify stock: 

Source: Google Finance

It crashed roughly 12.5% after Tuesday’s report. 

Why? Because the company failed to meet its own guidance on margins thanks to slow advertising growth. If a nearly 20% annual increase is slow in this environment we’re, again, impressed. 

The subs are there. The ad revenue is there. 

Spotify continues to diversify its offerings, putting less focus on music. In this world where seemingly everything has become a monthly subscription, Spotify is creating a broad and sticky ecosystem. 

Kind of like its top competitor, Apple (AAPL), is doing with its Services business. Similar to Amazon (AMZN)’s all-encompassing Prime ecosystem. 

While we wouldn’t put our retirement savings on the line, The Juice likes Spotify as a speculative long-term play. In our view, buying Spotify today is similar to buying Amazon 10 years ago, when it was growing like crazy and never turning a profit. 

It’s all about creating loyal users who have no reason to cancel on you because you’re giving them more than what they expect.

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Consumer Economy

There’s a Monthly Subscription for Everything

Key Takeaways:

  • Consumers spend considerably more on monthly subscriptions than they think. 
  • Often, it’s because they forget about them. 
  • No surprise, given that we live in a world where pretty much every product and service seems to be adopting the monthly subscription model. 

 

On average, people spend $219 a month on recurring subscriptions. But they think they spend $86. 

Gemerations

Source: C+R Research

This gap between perception and reality exists, in part, because people often forget about monthly subs they’re still paying for. Gen Z and millennials lead the way with 55% and 48% in their respective cohorts admitting to this oversight. 

This has led to a proliferation of services that for a monthly fee! will track and cancel unused subscriptions for you. 

Being sticky like Apple, Amazon, and Spotify is more important than ever. 

Because the number of companies nickel-and-diming you continues to increase. The more they ask us to set and forget a recurring charge via autopay, the more we might actually pay attention to what we’re subscribing to. 

The Juice has come across some interesting monthly subscription options. We figured it’d be fun to mention a few. 

Like Spotify, these companies take things you either can’t or don’t want to live without and monetize them monthly, not in one-off transactions. 

For example, air travel. 

Alaska Air (ALK) recently introduced Flight Pass. 

Starting at $49 a month, you pay a fee every month for 12 months, receiving credits along the way you can redeem for flights. The monthly fee climbs with the number of credits you elect to get, which corresponds to how frequently you fly. The company claims you’ll pay only a penny most of the time when you book with your Flight Pass credits. 

Here’s a better, more addictive one: coffee.

In Los Angeles, we recently discovered a local coffee chain, Go Get Em Tiger, with an unlimited program. Pay $52 a month and drink unlimited coffee at one location. Pay $72 a month and do it at multiple cafes. 

With one cappuccino going for $5, this seems like a no-brainer, even if you order only one per day. 

$5 x 30 days in a month = $150. 

This might not end well for Go Get Em Tiger. 

Here’s an even better, potentially more addictive monthly sub: weed. Cannabis. Marijuana. Ganja. Herb. Flower. 

You’ll find most monthly weed subscriptions in California. And they’re not unlimited. It’s one thing for coffee, entirely another for Mary Jane. Instead, they’ll deliver a box full of cannabis products to your door monthly for $99 a month. 

Nugg Club

Source: Nugg Club

Nug! We forgot about that one.

 

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The Bottom Line: It’s an increasingly crowded playing field. From an investing perspective, it all comes back to loyalty. Loyalty due to sticky ecosystems and solid delivery of products and services people need and crave as part of their daily lives. 

This is why Amazon thrives with Prime. Apple with its various monthly hits. And Spotify with its evolving ecosystem built around music. You don’t forget about these subscriptions. You just don’t think twice about paying for them. 

To that end, we’re not big on companies merely jumping on the monthly subscription bandwagon. If loyalty exists before a subscription emerges, we’re more likely to be bullish. So, if Starbucks, for example, goes the monthly route, sign us up. 

 

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