We recently compiled a list of the 12 Best Streaming Service Stocks to Buy According to Analysts. In this article, we are going to take a look at where Spotify Technology S.A. (NYSE:SPOT) stands against the other streaming service stocks.
The live streaming market size is expected to increase by US$20.64 billion, reflecting a CAGR of ~16.6% over 2024 and 2029, as per Technavio. The significant use of smartphones and constant internet connectivity allows users to easily stream content, resulting in market expansion. Furthermore, technological advancements such as AI and VR continue to enhance user experiences, further bolstering the market’s momentum.
Pivoting to Next-generation Streaming 2.0
After 4 years of experimentation among the legacy global diversified media companies, S&P Global believes that 2025 can be an inflection point in the broader industry’s multi-year transition to streaming from linear TV. The scaling of advertising on streaming is expected to be a critical component for growth in profitability. Most of the streaming services don’t have enough subscribers on ad-tiers to attract advertising dollars, mainly those advertising budgets that are departing linear TV, says the firm.
Mainly for 2025, the firm expects companies to announce international JVs and domestic bundling arrangements. Why? These strategies can help the scaling up of streaming services, manage operating expenses through sharing infrastructure costs (mainly in second-tier international markets), and reduce churn.
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Focusing on Quality and Not Quantity
As per BDO, media companies and those organizations providing streaming services have increased their content libraries in a bid to attract new customers. Over the past few years, several media companies and streaming providers focused on customer attraction, targeting to get as many new subscribers as possible. The streaming platforms continued to churn out new material, resulting in a content boom. Now, the companies are focused on prioritizing customer retention as they reassess the quality of their content to ensure that it addresses demand.
BDO expects that most major streaming platforms are expected to increase their spending on content by less than 10% over the upcoming few years. The broader streaming industry continues to invest in podcasts. However, since the podcast space remains crowded, differentiating new products is expected to remain critical in 2025 to fuel demand.
As the broader sector evolves, media companies and streaming platforms need to revamp their strategies to reap the benefits of opportunities and address challenges, like subscribers sharing credentials and customer retention. BDO opines that these companies are required to look for ways to improve revenues, either by increasing the service fees or adding ad-free tiers.
Our Methodology
To list the 12 Best Streaming Service Stocks to Buy According to Analysts, we sifted through several online rankings and chose companies catering to the broader streaming services sector. Next, we chose the ones that analysts view as Strong Buy stocks and see upside to. Finally, the stocks were arranged in ascending order of their average upside potential, as of February 14. We also mentioned the hedge fund sentiment around each stock, as of Q3 2024.
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).
A person wearing headphones listening to an audio streaming service.
Spotify Technology S.A. (NYSE:SPOT)
Average Upside Potential: 7.2%
Number of Hedge Fund Holders: 98
Spotify Technology S.A. (NYSE:SPOT) provides audio streaming subscription services. Phillip Securities analyst Helena Wang maintained a bullish stance on the company’s stock, providing a “Buy” rating. The rating is backed by the company achieving its first full year of profitability, with FY 2024 results surpassing expectations. Revenue went up by 16% YoY, thanks to an increase in monthly active users (MAUs) and premium subscribers, which exceeded Spotify Technology S.A. (NYSE:SPOT)’s guidance.
The company is anticipated to continue the positive trajectory through a strong focus on monetization strategies, like potential price increases and the roll-out of a new premium tier. As per the analyst, Spotify Technology S.A. (NYSE:SPOT) is an industry leader in audio streaming, possessing a strong subscriber base and pricing power, which strengthens the investment opportunity. The growth in streaming services fueled the demand for podcasts and audiobooks in which Spotify Technology S.A. (NYSE:SPOT) remains heavily invested.
The company’s acquisition of Anchor, Gimlet Media, and Megaphone allows it to monetize and distribute exclusive content. Rowan Street Capital, an investment management company, released its Q4 2024 investor letter. Here is what the fund said:
“Spotify Technology S.A. (NYSE:SPOT): Investment Initiated: May 2018
Internal Rate of Return (IRR): 14%
IRR for Spotify, while solid, has been influenced by the timing and size of our investments. Over the past six years, the company has achieved exceptional growth in users, revenues, and gross profits-as highlighted in the chart below. However, our IRR does not fully reflect this growth due to the cash flows involved in building our position.
We began buying Spotify shares in 2018 at an initial cost basis of $135 per share but continued to add to the position over the years, ultimately raising our average cost basis to $216 per share. Had we maintained our initial cost basis, the IRR on this investment would have been closer to 22%, which better aligns with Spotify’s fundamental growth in key metrics such as Monthly Active Users (MAU), revenues, and gross profits…” (Click here to read the full text)
Overall SPOT ranks 10th on our list of the best streaming service stocks to buy according to analysts. While we acknowledge the potential of SPOT as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than SPOT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
