Spotify Was Supposed to Gain From the Stay-at-Home Trend. It May Not Be Happening.

Raymond James analyst Justin Patterson cut his rating on Spotify stock to Market Perform from Strong Buy.

Raymond James analyst Justin Patterson cut his rating on Spotify stock to Market Perform from Strong Buy.

Investors continue to hunt for companies poised to benefit from the coronavirus-driven restructuring of the global economy. One area clearly seeing a benefit is streaming media, and indeed there is ample evidence that consumers are watching more video generally, and more Netflix content in particular.

There had been ideas that Spotify Technology could also get a boost from the current situation, but that may not be the case.

Raymond James analyst Justin Patterson on Monday cut his rating on Spotify stock (ticker: SPOT) to Market Perform from Strong Buy, saying in a research note that the current situation is providing no benefits to the streaming-music company. Trends among listeners are headed in the wrong direction, he says.

Patterson contends that the fact that we are all spending more time indoors turns out to be a negative factor for Spotify. Some typical use cases—commuting and gym time—have been curbed, as gyms close and people work from home.

The analyst notes that engagement has slowed, with Spotify’s top 200 streams worldwide down 12%, with declines of 16% in the U.S. and 20% in Italy. He adds that podcast listening also has declined. And he notes that downloads of music apps have slowed “as consumers focus on productivity and entertainment apps.”

Patterson also expects some shift of music listening to smart speakers—a change that he says could move some listening to Amazon Music from Spotify. And he also thinks that Spotify’s shift to a “two-sided” business model—adding revenue from artist marketing to the mix—is likely to be slower than expected, given delays in the release of albums and a complete lack of live events.

The analyst notes that Spotify shares have outperformed the market since stocks peaked on Feb. 19, on the theory that the company should fare well given that about 90% of its revenue is recurring. Spotify was down 15% through Friday, versus a 27% drop by the S&P 500, and a 36% average slide for mid-to-large cap Internet stocks,

He says he now fears that “weak end market audio and experiences trends is creating more risk in Spotify than investors appreciate.”

On Monday, the stock was up 0.8% to $123.10, lagging well behind the 5.5% rally in the S&P 500.

Write to Eric J. Savitz at

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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