1/ The more I work on $SPOT the more bullish I get about its long term prospects (and bearish on the long-term prospects for the big labels) and about the fact that consensus/ investors are still pretty sceptical about its ability to break free of the labels' hold on its…
2/ …margin structure, which drives really good upside at the current sub 4x forward EV/sales multiple. I think they are being deliberately very slow with putting through pricing as they currently pay so much of incremental revenue away to the labels.
3/ Game theory wise it makes total sense for them to keep prices low, gain share and hence improve their bargaining power vs the labels to extract better economics over time, at which point they get to keep more of the economics from price rises.
4/ I see a combination of trends which all lead towards meaningfully higher margins over time on much higher sales numbers which can drive earnings significantly above consensus and justify much higher EV/sales as the margin power becomes increasingly evident (long term).
5/ These drivers are: continuing and accelerating fragmentation of music listening away from the major labels' content;
6/ $SPOT continuing to gain market share and hence bargaining power vs the labels; increasing consumption of non-music content on Spotify (podcasts etc) and finally
7/ meaningfully increased revenue from podcast advertising over time, which comes at a way higher gross margin than their current business and hence can be a meaningful driver of total company gross margins over time.
8/ Recent v helpful Tegus call with ex Chief of Digital Music Rights at Warner Music Group reminds that Spotify currently pays away 65% of every $1 in revenue; 52% to the label and 12-13% to the song rights owner. Some extracts:
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1/ $OSTK - interesting to see Piper call it out as the most mispriced stock in their coverage universe. Front page of note:
They see tZero as worth $500m-740m (vs mkt cap $3.1bn) and see GSA-related revs as contributing 15-25% to total sales over time.
2/ I didn't know that only $OSTK, $AMZN and $TMO won the GSA RFP process out of 15 applicants with $OSTK's best-in-class security commended by the GSA diligence committee, who went through an extensive 18m diligence process.
3/ Piper think this win could make $OSTK an acquisition target for other large box retailers that did not get selected as part of the GSA process. Contract began with 5 federal agencies to buy up to $6bn in annual purchases over 3 years.
1/ Re $GOOGL $GOOG and their cloud business: V upbeat messaging from a Google Cloud partner interviewed by Jefferies. Have read similar stories elsewhere, that GCP is set to really accelerate this year.
2/ Given Google's still attractive valuation (especially factoring in Other Bets losses and cash on balance sheet, even better if assign meaningful valuation to under-monetised YouTube) and upside from Covid re-opening (travel-related ads 12-15% of ad revenues), the shares…
3/ …remain well-positioned to continue to perform in here in my view, despite having outperformed most of FAANG.
Jefferies hosted the CEO of a premier-level partner of Google Cloud.