Spotify Stock Up 3% Today – Time to Buy SPOT Stock?

The price of Spotify stock is rising 3.3% this morning in pre-market stock trading action following news that Google is allowing the company to offer in-app purchases as part of an exclusive pilot-phase partnership.

In a blog post published by Google, the company deemed the possibility of users picking other payment alternatives as “critical” even though its Google Play Store platform has always centralized payments.

In response, Google will be testing this additional billing system by partnering with Spotify, a company that has a global footprint and generates all of its revenue from its mobile application. The company said that this may lead to the implementation of this feature for other developers.

Spotify’s management stated in a separate press release that it will be launching the first version of this complementary payment system “later this year”.

The news come as tech giants such as Meta Platforms (FB), Alphabet (GOOG) – Google’s parent company – and Apple (AAPL) have been under pressure by regulators due to alleged monopolistic behaviors.

The move also comes only a few months after a judge ruled on the flagship case between Epic Games and Apple Inc. In its lawsuit against the manufacturer of the iPhone, the creators of Fortnite claimed that Apple had monopolistic control of all in-app payments as they would not allow users to use other channels or methods to complete their purchases.

US District Judge Yvonne Gonzalez Rogers ruled that Apple must stop forcing people to pay for apps and in-app items only through the App Store and gave the company 90 days to ease up its grip.

The specific terms of the deal with Google – such as how much Spotify will pay the company even if users go for the alternative payment method – were not disclosed by any of the two parties.

However, it would be plausible to expect that Spotify may save some money in the form of lower payment processing fees. Currently, Google charges around 30% to developers for all in-app purchases although the company introduced a lower 15% fee for a selected group of companies.

What could be expected from this tech stock following this interesting development? In this article, I’ll be assessing the price action and fundamentals of Spotify stock to outline plausible scenarios for the future.

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Spotify Stock – Technical Analysis

The price of Spotify stock has been steadily declining since November 2021 as equities in the tech sector suffered from an expected shift in macroeconomic conditions in the United States including the possibility of multiple interest rate hikes taking place this year.

So far this year, the stock has shed 36.5% of its value while SPOT stock is also trading 51.4% below its 52-week high. Moreover, the stock is also standing 33.7% below its 200-day simple moving average.

Even though the stock remains confined within the descending price channel highlighted in the chart, SPOT has closed 6 of the last 7 trading sessions with gains and has moved above a relevant area of support that has now turned to resistance at $145 per share.

Momentum indicators are moving to positive territory with the Relative Strength Index (RSI) standing at 51 (bullish) while the MACD has crossed above the signal line at the same time histogram readings have been steadily increasing.

Moving forward, the price of Spotify may be poised to tag the upper bound of the price channel at around $170 per share. That would result in a short-term upside potential of 14%.

Spotify Stock – Fundamental Analysis

Last year, Spotify grew its revenues by 22.7% compared to 2020 at $9.7 billion and managed to produce GAAP operating profits of $94 million and a small net loss of $34 million. Additionally, the company produced $276 million in free cash flows.

It seems that Spotify is progressively becoming a more mature business as its path to profitability is now clearer than ever.

Meanwhile, the company has a fairly healthy balance sheet comprised of $1.2 billion in convertible notes and $580 million in lease liabilities on total assets of $7.17 billion including $2.74 billion in cash and equivalents and $756 million in short-term investments.

The latest decline in SPOT stock has pushed its market capitalization to $28.17 billion resulting in a forward price-to-sales ratio of 2.2x.

For a business with such a strong brand, user base, and value proposition, this valuation seems particularly attractive as Spotify still has plenty of room to grow in the future.

Moreover, a reduction in the fees charged by Google for in-app purchases could lead to an improvement in Spotify’s profitability in the next few months depending on how the arrangement works and whether users opt to use this alternative method.

Overall, the outlook for Spotify from a fundamental perspective is positive and even though some more negative volatility could be prompted by negative macroeconomic and geopolitical events, any further decline in its valuation might be considered as an even more appealing opportunity to grab some shares.

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