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Put Spotify Technology Stock on Your Watch List, But Don’t Pull the Trigger Yet

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·5 min read
In this article:
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  • Spotify Technology (NYSE:SPOT) stock looks to have bottomed in mid-March and has risen 30% since then.

  • The controversy involving podcaster Joe Rogan has died down and Spotify has gotten some relief from the Google Play app store.

  • But concerns remain about Spotify’s growth trajectory and its ability to continue adding monthly active users.

Spotify (SPOT) logo is on the screen of a smartphone with headphones plugged in.
Spotify (SPOT) logo is on the screen of a smartphone with headphones plugged in.

Source: Kaspars Grinvalds / Shutterstock.com

Up nearly 30% since mid-March, Spot stock looks to have finally turned a corner.

That said, SPOT stock is still down 35% since the start of the year. At its current share price of $158.84, Spotify’s stock is nearly 50% below its 52-week high of $305.60 reached last November.

The company’s shares have been beaten down by a rotation out of technology and broad market volatility. The company also is enduring a very public scandal involving one of the company’s marquee podcasters that dominated media headlines for several weeks in February.

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However, the war in Ukraine has pushed the controversy out of the media spotlight and Spotify’s stock now appears to be recovering along with other beaten-down tech names.

Spotify Technology

SPOT

$158.84

It seems like a long time ago now, but it was a little more than a month ago when Spotify was dominating news headlines for all the wrong reasons.

Upset by podcaster Joe Rogan’s criticisms and claims about vaccines, several legendary musicians such as Neil Yong, Joni Mitchell and Crosby, Stills and Nash demanded that their music be removed from the streaming service.

Forced to choose between the musicians and Joe Rogan, Spotify stood by the podcaster whom they are reportedly paying $200 million.

The stance by Spotify caused an uproar on social media, which got worse when racially charged language that Rogan used in the past was also brought to light.

Rogan and SPOT Stock

Spotify executives did their best to weather the storm, stating repeatedly that they don’t condone or agree with what Joe Rogan says on his podcast and agreeing to add disclaimers to many of the episodes.

Rogan himself apologized and said that he would try to be sensitive to other points of view going forward. However, the controversy did nothing to help SPOT stock, which fell more than 40% between Feb. 1 and March 14.

Things seemed to be going from bad to worse for Spotify when the company got some relief after Russia invaded Ukraine. The war in Europe quickly pushed the Spotify controversy, and, to a lesser degree, the Covid-19 pandemic out of the news cycle.

Google Payments

In addition to the Joe Rogan controversy fading from view, Spotify also got some good news at the end of March when Google parent company Alphabet (NASDAQ:GOOGL) announced that it will allow the streaming platform use its own payment system in the Android app store.

The decision is part of a new pilot payment program that will allow consumers to decide if they want to pay Spotify’s monthly fee through Google Play or directly.

This is seen as a positive development as it reduces the cut Spotify pays to Google for listing its app in the Play store, and it could help to increase Spotify’s revenue. By some estimates, Alphabet had been taking up to 30% of Spotify’s app revenue.

However, while Spotify has found some relief in recent weeks, the company is still struggling with mixed financial results and slowing user growth.

SPOT stock fell 13% in early February the day after the company reported fourth-quarter results that included weak forward guidance related to user growth.

Spotify reported a Q4 loss of $0.24 per share, which was much better than the $0.49 per share loss expected by Wall Street analysts. The company’s revenue also topped analyst expectations.

Spotify forecast that it will have a total of 418 million monthly active users at the end of the just-completed first quarter, which was barely in line with the 417.8 million users expected by The Street. That guidance shook confidence in Spotify and its shares sank as a result.

Keep An Eye On SPOT Stock

While the bleeding in Spotify’s stock appears to have stopped, the share price still has a lot of ground to make up to get back to the lofty heights it was at last autumn.

The Joe Rogan controversy has died down and the company has gotten some relief from Google, but questions remain about Spotify’s long-term growth potential and the viability of its business model.

Analysts continue to express doubts about the company’s ability to continue adding users at the pace it has in recent years, especially during the pandemic when people were locked down at home.

At this point, investors should keep an eye on Spotify and watch where the share price heads in the near term. Hold off from taking a position until it is clear that a sustained recovery is taking place. Right now, SPOT stock is not a buy.

Disclosure: On the date of publication, Joel Baglole held a long position in GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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