We recently compiled a list of the 8 Best Music Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Spotify Technology S.A. (NYSE:SPOT) stands against the other Best Music Stocks to Buy According to Hedge Funds.
The Global Music Industry Continues to Grow
According to a report by IFPI, the global recorded music market was worth $28.6 billion in 2023 and witnessed the ninth year of consecutive growth. It represented a diverse and global industry that saw revenues grow in every region and across virtually all recorded music formats with the exception of downloads and other (non-streaming) digital formats.
The global recorded music revenues grew by 10.2% in 2023, largely due to the growth in paid streaming subscribers. Streaming continued its domination of global revenues. Streaming revenues made up the majority of revenue growth and total share of the market. Subscription streaming revenues solely increased by 11.2% and accounted for almost half of the global market. 2023 was also the year when the paid subscriptions to music streaming services exceeded 500 million for the first time.
Region-wise, USA & Canada held the largest share of global recorded music revenues, experiencing a growth of 7.4% in 2023. Revenue grew by 7.2% in the USA, the single largest recorded music market globally, and by 12.2% in Canada. Simultaneously, Europe represented more than a quarter of global revenues with its revenue growth of 8.9%. Asia had a revenue growth of 14.9%, underpinned by a healthy growth in its major markets of Japan and China.
What’s Happening in the Music Streaming Space?
In an era of growing music streaming as aforementioned, Spotify is expected to continue its dominance. Todd Gordon, Inside Edge Capital founder, joined CNBC to discuss the potential growth of the firm. The stock is currently hanging just below its record highs. In his opinion, it looks great with its year-over-year ‘insane’ earnings growth, the generation of substantial free cash flow, subscriber growth, and the company winning the music streaming war against rivals. Thus, the firm is big in music with other competitors which do not seem quite as robust.
The music streaming space is about to see one less player as TikTok has decided to shut down its music streaming business in November after an experiment of directly competing with the industry giants for just over a year. In July 2023, TikTok launched its music streaming service in Indonesia and Brazil before it rolled out in Australia, Mexico, and Singapore. Data from MIDiA Research revealed that TikTok is the second-most common source of music discovery for those aged 16 to 19, following YouTube.
Although the service was perceived as a low risk to premium incumbent platforms since they have strong brand loyalty, TikTok’s large installed base of users presented it an opportunity to convert them into paying TikTok Music subscribers. However, the firm is now focusing its resources on its ‘Add to Music App’ feature which enables users to save music tracks they discover on TikTok to playlists on partner services. Regarding the move, the global head of music business development, Ole Obermann stated:
“Our Add to Music App feature has already enabled hundreds of millions of track saves to playlists on partner music streaming services”
Now that we have discussed the music industry dynamics, let’s move to the 8 best music stocks to buy according to hedge funds.
Our Methodology
In order to compile a list of the 8 best music stocks to buy according to hedge funds, we sifted through stock screeners, ETFs, and online rankings to create an extensive list of players in the music industry. Moving on, we shortlisted the top 8 stocks from our list which had the highest number of hedge fund holders. The 8 best music stocks to buy according to hedge funds have been arranged in ascending order of their hedge fund holders as of Q2 2024. It is important to note that we have included only pure-play music stocks.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Spotify Technology S.A. (NYSE:SPOT)
Number of Hedge Fund Holders: 88
Spotify Technology S.A. (NYSE:SPOT) is a leading music streaming platform worldwide. While the platform launched in 2008, it moved into podcasting and brought a new generation of listeners to the medium. Spotify made its way into the next audio market primed for growth with the addition of audiobooks in 2022.
Spotify serves as the most popular audio streaming subscription service worldwide with more than 626 million users, including 246 million subscribers in over 180 markets. Other than boasting a robust list of Premium plans globally, the firm is introducing new subscription plans to give subscribers more listening choices with options like the Audiobooks Access and Basic tiers. Subscribers can now access more than 6 million podcasts, 250,000 audiobooks, and almost the world’s whole music catalog.
Spotify Technology S.A. (NYSE:SPOT) recorded a promising second quarter with healthy subscriber gains, record profitability, and improved monetization. Total revenue grew 20% year-over-year to €3.8 billion and operating income finished at a record high of €266 million. Monthly active users grew 14% and premium subscribers grew 12%, year-over-year. Spotify also unveiled new experiences by expanding its video podcast catalog to over 250,000 shows, introducing a new Basic plan in Australia, the UK, and the US for ad-free music listening without audiobook listening time, and incorporating over 250,000 audiobook titles into its Premium offering in Canada, Ireland, and New Zealand.
The firm’s recent quarter marked three consecutive quarters of profitability. Spotify remains a good deal by giving access to all of the content that would normally cost a user approximately $26 in the US, which is significantly more than a Spotify subscription. With strong fundamentals, Spotify Technology S.A. (NYSE:SPOT) is an attractive music stock to invest in.
Overall, SPOT ranks 1st on our list of the other Best Music Stocks to Buy According to Hedge Funds. While we acknowledge the potential of SPOT as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SPOT, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.