Assessing Spotify Technology (NYSE:SPOT) Valuation After New Universal Music Remix Add On

Why Spotify’s new remix tool matters for investors

Spotify Technology (SPOT) and Universal Music Group have agreed new recorded music and publishing licenses that allow Spotify to launch a paid Premium add on for fan created covers and remixes from participating artists.

For investors, this raises questions about how a paid creative tool might influence Spotify’s subscription appeal, user engagement, and long term monetization for both the platform and its music partners.

See our latest analysis for Spotify Technology.

Spotify’s latest share price of US$507.76 comes after a 1 month share price return of 15.01%, while the year to date share price is down 11.69% and the 1 year total shareholder return has declined 24.44%. This is set against a very large 3 year total shareholder return and a little more than double 5 year total shareholder return, which together suggest earlier momentum has cooled but the stock has still rewarded longer term holders.

If this kind of product update has you thinking about where technology and entertainment could meet next, it may be worth scanning 47 AI infrastructure stocks

With Spotify trading at US$507.76 and sitting below the average analyst target and an estimated intrinsic value, the key question is whether that gap signals an undervalued stock or a market that is already pricing in future growth.

Most Popular Narrative: 42% Overvalued

According to the widely followed valuation narrative by andre_santos, Spotify’s fair value of $357.76 sits well below the last close of $507.76. This raises clear questions about how much optimism is already in the price.

Now that we did all the heavy work, let”s take the above and come up with the company weighted average fair value.

I basically take each valuation method used and, given my confidence on the company, apply a 20% or 10% discount (when to buy) and addition (when to sell) or use the Monte Carlo P10, P20, P80 and P90 values:

Read the complete narrative.

Want to see what is baked into that fair value? The narrative leans on projected margins, sustained revenue growth and earnings compounding. Curious how those levers interact.

Result: Fair Value of $357.76 (OVERVALUED)

Have a read of the narrative in full and understand what’s behind the forecasts.

However, there are clear pressure points, including higher content costs from rights holders and the risk that listener tastes shift away from subscription audio platforms.

Find out about the key risks to this Spotify Technology narrative.

Another View on Spotify’s value gap

While the user narrative sees Spotify as 42% overvalued at a fair value of $357.76, the SWS DCF model points the other way, with an estimate of $782.93 and the stock trading 35.1% below that level. For you, that split view raises a simple question: which framework do you trust more?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Spotify Technology for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 47 high quality undervalued stocks. If you save a screener we even alert you when new companies match – so you never miss a potential opportunity.

Next Steps

With sentiment clearly split, it makes sense to look at the underlying numbers yourself and decide how Spotify fits your portfolio. To see what the market is optimistic about and where those potential rewards sit in the story, take a closer look at the 4 key rewards

Looking for more investment ideas?

If Spotify is already on your radar, do not stop there. Widen your scope and use curated stock lists to spot other opportunities that fit your style.

This article by Simply Wall St is general in nature. We provide commentary based on historical data
and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your
financial situation. We aim to bring you long-term focused analysis driven by fundamental data.
Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Simply Wall St has no position in any stocks mentioned.

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