Worm Capital, an investment management firm, published its first-quarter 2022 investor letter – a copy of which can be downloaded here. During the first quarter of this year, the fund outperformed its benchmark, the S&P 500 TR by 25.64 percentage points but its year-to-date return is still down by -18.12%, compared to the -4.59% return of its benchmark over the same period. Try to spend some time taking a look at the fund’s top 5 holdings to be informed about their best picks for 2022.
In its Q1 2022 investor letter, Worm Capital mentioned Spotify Technology S.A. (NYSE:SPOT) and explained its insights for the company. Founded in 2006, Spotify Technology S.A. (NYSE:SPOT) is a Stockholm, Sweden-based music streaming company with a $26.2 billion market capitalization. Spotify Technology S.A. (NYSE:SPOT) delivered a -41.77% return since the beginning of the year, while its 12-month returns are down by -54.54%. The stock closed at $136.27 per share on April 15, 2022.
Here is what Worm Capital has to say about Spotify Technology S.A. (NYSE:SPOT) in its Q1 2022 investor letter:
“Spotify, another core holding, has dramatically underperformed in the market, falling ~37% in the first quarter and fully-roundtripping to its direct listing price in 2018, which has dragged down our overall performance. Despite the underperformance of the stock, we are fundamentally bullish on the company and its prospects going forward. Like our experience with Tesla in 2019, Spotify is facing investor scrutiny about its path to profitability, increased competition, and even some cultural flare-ups that captivated the media and investors (i.e. Joe Rogan). Also like Tesla in 2019, our internal price targets keep going up while the stock price keeps faltering.
Here is the reality: We believe Spotify is one of the most relevant platforms in existence today, and in our view, it faces a very good chance of eclipsing the value of Netflix (currently ~$152b) over the next several years. At a current market value of less than $27 billion, we have ample runway ahead. Spotify is building the global audio infrastructure of the Internet, which we believe will enable a large influx of high-margin revenue through advertising and direct monetization. Just as video content is a trillion-dollar opportunity, we view audio through a similar lens.
At a recent investment conference, Paul Vogel, Spotify’s CFO, commented about the long-term profitability of what Spotify is building. “The opportunity in front of us is still massive,” he said. “Like you said, we’re at 400 million users. We think we can get to 1 billion… there’s ways to grow gross margin, [and] we believe we have a path to get there. And so there’s two ways to do it: one is to properly tell our story, which we will do; and then two is just deliver the results.” We agree.”
Photo by Alexander Shatov on Unsplash
Our calculations show that Spotify Technology S.A. (NYSE:SPOT) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Spotify Technology S.A. (NYSE:SPOT) was in 53 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 48 funds in the previous quarter. Spotify Technology S.A. (NYSE:SPOT) delivered a -39.82% return in the past 3 months.
In April 2022, we published an article that includes Spotify Technology S.A. (NYSE:SPOT) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.
Disclosure: None. This article is originally published at Insider Monkey.
