Spotify (SPOT) is one of the unique tech stocks that’s seen some impressive growth over the past year. And given the strength of the overall market rally of late, it shouldn’t be surprising to many to note that this rally has led to about 100% gains for the stock over the past year, at the time of writing.
The audio streaming platform has continued to see strong growth, driven by a pivot toward podcasts and music streaming services. Spotify’s bundled packages, which include a number of intriguing add-ons, have driven more and more users to the platform.
However, a recent announcement that Spotify will be introducing a new direct messaging feature has some investors even more giddy on the stock. Let’s dive more into what was announced and what this may mean for Spotify moving forward.
One of the key factors that can get lost during rabid bull market rallies, such as the one we’ve been in for some time now, is valuation. Valuation matters, and that’s always true. But when investors are willing to pay higher and higher prices for growth, that’s when some investors may choose to opt for more conservative portfolio construction.
The thing is, while Shopify’s underlying growth remains strong (around 16% revenue growth year-over-year), overall EBITDA growth has slowed. Accordingly, while adding more paying customers is always a good thing, adding more in the way of costs as a company scales isn’t generally perceived to be a good thing.
That said, this recent announcement that DMs will become part of Spotify’s offerings is intriguing. This move has the potential to position Spotify as a leader in the social media space, with a devoted base of music lovers (and casual listeners) bantering back and forth about almost anything.
Notably, this feature is expected to be rolled out to both free and premium users, so it does appear that Spotify is looking to cast a large net. With what appears to be solid encryption technology underpinning this release, and millions of paying subscribers looking to connect over music, this integration is one that certainly seems to make sense.
