The Long-Term Case Behind Spotify Stock Continues to Look Grim InvestorPlace - Stock Market News, Stock Advice & Trading TipsSPOT stock holders not only have to deal with the market rotating out of tech stocks, but also Spotify's unsettling...

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InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Stockholm-based Spotify (NYSE:SPOT) features music on its platform and disseminates the audio to its users and attempts to monetize through premium subscription fees and advertising. SPOT stock was a sensible investment when the Covid-19 pandemic took hold in 2020, but the circumstances have changed since then.

Spotify (SPOT) logo is on the screen of a smartphone with headphones plugged in.
Source: Kaspars Grinvalds /

For one thing, many of the Covid-19 lockdown restrictions have been lifted. People are venturing outdoors now, instead of relying so much on digital entertainment.

Other circumstances have changed as well. Over the past half-year or so, technology related stocks have gone out of favor. That's not Spotify's fault, of course, but it's a factor that prospective investors should take into consideration.

On top of all that, Spotify's financials are far from ideal. At the end of the day, tech-market investors will likely want to seek returns from a company and a stock that's less problematic.

SPOT Stock at a Glance

This isn't to suggest that SPOT stock was always problematic. As we alluded to earlier, the onset of the Covid-19 pandemic provided a tailwind for Spotify for a while.

When the Spotify share price zoomed from $122 to $365 in 2020 and early 2021, it seemed as if the sky was the limit. As it turned out, however, Spotify's investors should have taken their profits and moved on.

SPOT stock hasn't exactly made a round trip back to $122 yet. It's getting close, though. As of March 7, 2022, the share price was already in the $130s.

In other words, Spotify shares have barely made any progress since the company's April 3, 2018, direct listing. It just goes to show that a company can debut on the stock market to much fanfare, but informed investors should always look deeper and make their own decisions.

When Value Matters Again

The point of highlighting the price arc of SPOT stock is to illustrate what has happened to a number of high-flying tech/growth stocks over the past six months.

Some tech names will do well in all "weather conditions," so to speak. These all-weather stocks offer a balanced mix of growth and value.

Consequently, when the market rotates out of the high-flyers and into value havens, they'll typically seek out stocks representing businesses that are profitable.

This isn't to suggest that Spotify is a "zombie company" with no real operations. As we'll see in a moment, the company is capable of growing its user base and subscriber count.

Yet, Spotify has no price-to-earnings ratio because, to put it bluntly, the company has no earnings. This makes SPOT stock unattractive in a time when value is a priority in the market.

Cracks in the Foundation

It's difficult to justify buying a stock that's falling fast. In Spotify's defense, we can say that the company grew its monthly active user count by 18% year-over-year during 2021's fourth quarter. Also, Spotify increased its premium subscriber count by 16% year-over-year during that quarter. These aren't spectacular increases, but they're respectable and we can give credit when it's due.

Still, there's no denying the cracks in Spotify's financial foundation. Consider that in 2021's third quarter, Spotify reported 2 million euros of net income. Then, in 2021's fourth quarter, the company incurred a net loss of 39 million euros. Clearly, Spotify's bottom-line results are heading in the wrong direction.

On top of that, Spotify sustained a net loss of 34 million euros for the full year of 2021. Once again, the bearish argument against SPOT stock is gaining traction.

The Takeaway

Prospective investors should continue to monitor the company's financials, as Spotify hasn't demonstrated an ability to remain profitable.

As the market rotates into value plays, it's becoming increasingly important to pay attention to each company's bottom line. This is particularly true when it comes to tech-related names.

After delving into the fiscal stats, it looks like Spotify doesn't pass muster. In the final analysis, it's wise to avoid SPOT stock altogether and consider other technology-segment investments.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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