JDP Capital Management's Largest Position and Largest Contributor: Spotify Technology S.A. (NYSE:SPOT)

Spotify Technology S.A. (SPOT) is JDP Capital Management's largest position and has been the largest contributor to fund performance for the past two years. The stock gained 71.5% in the first half of 2025. Since initiating the position 6.5 years ago, SPOT has delivered a 5.7x return or 27.5% annualized.

Spotify Technology S.A. (SPOT) has been a standout performer for JDP Capital Management, contributing significantly to fund performance over the past two years. The stock has surged 71.5% in the first half of 2025, building on a 5.7x return since its inception 6.5 years ago, with an annualized return of 27.5%.

Robust User Growth and Engagement

Spotify's monthly active users (MAUs) have been a key driver of its growth. In the second quarter of 2025, MAUs increased by 11% year-over-year to 696 million, with premium subscribers growing by 12% [1]. The company expects to add 14 million MAUs and 5 million premium subscribers in the third quarter of 2025, reflecting its optimism about user growth and retention.

Monetization Challenges

Despite its strong user base, Spotify faces challenges in monetizing its platform. The company has struggled with ad monetization, with CEO Daniel Ek stating that it is an execution problem rather than a strategic one [1]. Recent changes to its Partner Program model and exclusivity policies have lowered available ad inventory, impacting short-term revenues. The recent departure of Lee Brown, the global head of advertising sales, further underscores these challenges.

Intensifying Competition

Spotify's market share in the U.S. stands at 36% of paid audience, but it faces stiff competition from tech giants like Apple and Amazon, which account for 30.7% and 23.8% of the market, respectively [1]. The company's ability to maintain its market leadership and profitability will depend on its ability to innovate and adapt to changing consumer preferences and market dynamics.

Valuation Concerns

Spotify's stock is priced at 72.39 times forward 12-month earnings per share, significantly higher than the industry average of 24.65 times [1]. Additionally, the trailing 12-month EV-to-EBITDA ratio is 61.82 times, far exceeding the industry average of 35.95 times. These valuation metrics raise concerns about the stock's potential for further growth.

Bleak Bottom-Line Prospects

The Zacks Consensus Estimate for earnings per share is set at $5.73, a decline of 3.7% from the year-ago quarter [1]. Analysts have become more pessimistic about Spotify's earnings prospects, with seven estimates moving south in the past 30 and 60 days. This lack of confidence in the company's ability to generate earnings growth is a significant concern for investors.

Conclusion

Spotify Technology S.A. has demonstrated strong user growth and engagement, but it faces significant challenges in monetizing its platform and maintaining its market leadership in the face of intensifying competition. The stock's high valuation and bleak bottom-line prospects raise concerns about its potential for further growth. Long-term investors should carefully consider these factors before making investment decisions.

References
[1] https://www.theglobeandmail.com/investing/markets/stocks/SPOT/pressreleases/34083103/spot-skyrockets-106-in-a-year-how-should-you-play-the-stock/
[2] https://simplywall.st/stocks/us/media/nyse-spot/spotify-technology/news/why-spotify-spot-is-up-126-after-q2-loss-price-hike-and-dire