What Joe Rogan Controversy? Spotify Surges As Expert Declares Stock Undervalued After $10 Billion Crash

Topline

Shares of Spotify surged Monday following a bullish analyst rating, helping to pare losses stemming not from the high-profile controversy around Joe Rogan’s podcast, but instead shockwaves sent across the industry by Netflix’s massively underwhelming growth outlook.

Spotify stock surged Monday.

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Key Facts

Spotify stock jumped as much as 13% to $195 Monday after Citi analyst Jason Bazinet recommended investors buy shares following a broad plunge in subscriber-based shares, reversing losses that at one point pulled shares down 27% this month alone to a two-year low of $170.

Though Spotify’s been making headlines for a burgeoning boycott by musicians blasting the streaming platform’s ongoing support for “The Joe Rogan Podcast,” Bazinet pinned the firm’s stock plunge to the lower-than-expected subscriber growth Netflix reported earlier this month, but said prices should recover thanks to Spotify’s large advertising business.

In a Thursday note, KeyBanc analyst Justin Patterson struck a similar note, telling clients he “finds some comfort” in Spotify’s fast-growing sales from advertising to compensate for lowered projections for its subscription revenue over the next two years.

Spotify is still down nearly 17% this month, compared to a 7% plunge for the S&P 500, as investors cashed out of unprofitable tech stocks in anticipation of the Federal Reserve’s looming interest rate hikes.

Fueling the plunge last week, Moness Crespi analyst Brian White said Spotify, which has yet to turn a quarterly profit in its 16-year history, faces an “unforgiving” tech selloff, adding that “Netflix’s challenges have ushered in fears of the unknown” for the broader streaming subscription services.

White said the “troubling” quarter for Netflix, whose shares have plunged 30% since the report, “has cast a cloud of suspicion over the Spotify story,” and lowered his price target for the music-streaming service from $380 to $240.

Key Background

Since its founding in 2006, Spotify has become the world’s most popular audio streaming service, with more than 381 million active users, 172 paying subscribers and 70 million tracks on the platform. Though it’s long focused on music, the company has more recently turned to podcasting in a bid to grow its business, acquiring audio company Podz for $50 million in June and exclusive licensing rights for the “Joe Rogan Experience” in a $100 million deal one year earlier. In October, the firm said the Rogan podcast, which attracts an estimated 11 million viewers per episode, contributed to an overall increase in third-quarter revenue.

Tangent

The Spotify-Rogan relationship came under intense scrutiny this month after a group of 270 health experts published an open letter on January 12 urging the platform to establish a clear misinformation policy in response to rampant Covid information on the podcast, pointing to Rogan’s consistent promotion of ivermectin as a treatment for the virus despite the Food and Drug Administration warning it’s not proven to be effective. Though analysts have yet to point to the backlash as having any real impact, several musical artists, including Neil Young, Nils Lofgren, and Joni Mitchell, removed their music from Spotify last week due to Rogan’s claims. Responding on Sunday, CEO Daniel Ek said Spotify has “heard the criticism” and will add warnings to combat misinformation. (Rogan followed with his own apology.)

Surprising Fact

Though they skyrocketed as much as 150% during the pandemic, Spotify shares have plunged more than 50% from an all-time closing high of nearly $365 last February, wiping out more than $30 billion from the firm’s market capitalization—including $10 billion this month alone. The firm’s now valued at about $36 billion.

Big Number

$3.2 billion. That’s how much Ek, who launched the Sweden-based platform in 2008 with business partner Martin Lorentzon, is worth, according to Forbes.

What To Watch For

Spotify will report fourth-quarter earnings on Wednesday, after the market closes.