Vinyl’s Making a Comeback

Key Takeaways:

• There’s lots of Spotify hate right now. 
• The Juice currently wouldn’t touch that stock. 
• But we’ll buy some vinyl… 

There’s a reason Pandora, now part of Sirius XM (SIRI), never got completely off the ground: It was committed to music and radio.

Audio streamers pay a ton in royalties. Spotify (SPOT), for example, spent roughly 75% of its 2022 revenue on royalties. So focusing on music and digital radio simply isn’t sustainable. 

Spotify stock is up more than 50% year to date… 

Source: Google Finance 

The Juice thinks investors love how Spotify is TikToking itself – moving away from its audio roots and rapidly shifting towards a model where creators take center stage with the emergence of video podcasts. Focusing on a business with greater profit potential and modern-day appeal. 

Everything Old Is New Again 

For as well as Spotify has started the year on Wall Street, it’s getting trashed in the popular media and on the streets. 

First, some users don’t like the redesign. They go to Spotify for music, not video podcasts.

Second, what is a video podcast anyway? As Jimmy Fallon hilariously pointed out last week on The Tonight Show, he’s doing a video podcast! 

Spotify and the rest of Gen Z have taken one of the oldest concepts in television (the freaking talk or variety show) and slapped a new name on it (video podcast). Then they run around acting as if they discovered America. 

But taking something old and repackaging it as new is a trend over the last few years. 

We noticed billboards for the CBS show Magnum P.I. in LA the other day. Come to find out, the reboot of the 1980 Magnum P.I. is in the middle of its fifth season. 

Back to music, where, amid video podcasts and curated playlists, vinyl continues to crush it: 

Source: Recording Industry Association of America

• For the first time since 1987, vinyl record sales surpassed CD sales. 
• That’s good for 16 consecutive years of growth. 
• Vinyl now accounts for 71% of all physical music revenue. 
• In 2022, listeners bought 41 million vinyl records and 33 million CDs. 

It’s incredible to think that pre-teens might think CD stands for certificate of deposit. But they’re likely more familiar with vinyl than compact discs. 

Big shoutout to Taylor Swift, who helps proliferate this trend. She released five cosmetically different vinyl versions of her latest album, Midnights, and eight unique iterations of her second-to-last album, Folklore. 

The Bottom Line: To consider Spotify stock a core holding, we need to see stronger growth in advertising revenue. 

The company stated a goal of $20 billion in ad sales this year. Advertising revenue did grow 14% year over year in 2022, but it comprises only 14% of total revenue. 

So it’s not even the lack of profitability that bothers us. It’s the super high costs the company pays in virtually every area of its business, absent hypergrowth in its self-proclaimed promising areas. 

We’ll stick to the leaders in the broad space, such as the company that blows away almost all other stocks in terms of search interest in our proprietary sentiment indicator, Trackstar: Google parent company Alphabet (GOOG/GOOGL). Relative to Spotify, Alphabet is almost as sure of a bet as vinyl.

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