Since the beginning of the year, Spotify stock (SPOT) – Get Spotify Technology SA Report has dropped around 20%, leaving some investors worried. The decline happened while the Nasdaq index appreciated by more than 22% in the same period.
However, in the last couple of weeks of August, SPOT share price climbed more than 10%, outpacing many of its tech industry peers. Below are some of the reasons for the share price appreciation, along with a discussion on whether the bullish trend could continue.
(Read more from MavenFlix: Spotify Can Kill It With Podcasts. Here’s How)
Delta Air Lines deal
One of the reasons for recent bullishness has been Spotify’s new partnerships. The most recent involved Delta Air Lines. The company is the third largest airline in the world, both in terms of fleet size and number of passengers carried.
Delta Air Lines will license Spotify’s content and make it available free of charge to all its passengers throughout the flight. The content includes songs as well as podcasts available on the platform.
This partnership is intended to benefit both the airline and Spotify. The former will be able to differentiate itself from the competition on services offered. The latter will be paid for songs licensed and be exposed to potential new users on several flights every day.
Repurchase of shares
Another potential driver of SPOT’s price performance in August was the company’s announcement that it intends to spend up to $1 billion on share buybacks by 2026. The amount represents more than 2% of the company’s total market value of nearly $50 billion today.
On the day of the announcement, Spotify shares jumped around 5% in a display of positive sentiment. Share buybacks have become a common feature in Corporate America and is usually considered a bullish sign. Spotify had already launched a buyback program in 2018.
The stock market
Finally, the broad market may have had something to do with Spotify’s market value appreciation. In August, the S&P 500 broke several records against the odds, especially in the last days of the month.
Despite the imminent risks associated with the pandemic, economic recovery and the direction of monetary policy, the market behaved quite well. Ryan Detrick, chief market strategist for LPL Financial, told CNBC:
“We can’t entirely dismiss the risks, including the delta variant, supply chain disruptions, and inflation pressures—particularly wages. But we expect corporate America’s efficiency and the strength of the reopening to continue to power earnings ahead and lead to additional gains for stocks over the rest of 2021.”
In addition to the above, Fed chairman Jerome Powell’s speech at the Jackson Hole symposium was perceived to be a positive. He commented on the scaling back of the US central bank’s bond purchase program, but reassured that he is in no rush to taper or raise interest rates.
As a reminder, the S&P 500 was up 3% and the Nasdaq climbed 4%, while the Dow Jones gained less than 2% in August.
Spotify shares, even after the late August rally, remain well below the year’s $365 high reached in February. See chart below.
Given the secular trends in digital transformation within the entertainment space; expansion of the internet infrastructure in emerging markets; and the migration of radio listeners to streaming, Spotify could be a good stock pick on weakness.
(Read more from MavenFlix: Why Global Expansion is Key for Spotify’s Success)
After a nice rally in late August, do you think SPOT will follow the uptrend through the end of the year?
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting MavenFlix)