Are Spotify (NYSE: SPOT) and Twitter (NYSE: TWTR) good investments in 2022? Both have seen their share price fall in the past year, 25% and 20%, respectively. But there’s reason to believe the tide is turning. Indeed, Jack Dorsey’s successor is sure to cause a shake-up. At the same time, Spotify may stand to benefit as Twitter’s heavy-handed cancellation policy drives users to listen to the Joe Rogan Experience podcast on Spotify.
What’s driving Joe Rogan’s popularity?
Ever since President Trump was banned from Twitter after the Capitol insurrection on January 6, 2021, Twitter has been heavily criticized for the power it wields. Joe Rogan is one outspoken voice on the matter, and he’s since hosted several guests that have had their accounts banned.
Spotify has exclusive rights to the Joe Rogan Experience podcast, which means listeners must pay a Spotify subscription fee to access the show.
Two highly controversial guests Rogan has recently interviewed include Dr. Peter McCullough, who claims health officials withheld treatments for COVID-19 in the early days of the outbreak, and Dr. Robert Malone, the inventor of the nine original mRNA vaccine patents.
Both McCullough and Malone have recently had their Twitter profiles canceled. The reason is not entirely clear but a Twitter spokesperson reportedly said Malone’s account was permanently suspended for “repeated violations of our Covid-19 misinformation policy.”
Furthermore, several posts appear on Twitter stating interested listeners signed up for new Spotify accounts specifically to listen to the controversial interview.
I created a Spotify account specifically so that I could watch Joe Rogan's Dr. Malone interview.— Dereck Coatney (@DereckCoatney) January 1, 2022
It's worth every minute of your time.
Joe Rogan's interview with Dr. Robert Malone and the vaccines got me to sign up for Spotify. Enjoyed the interview. Did you watch it? What did you think?— Jason Whitlock (@WhitlockJason) January 1, 2022
Not everyone’s impressed, though. Revered yet abrasive philosopher Nassim Nicholas Taleb has debunked the Malone interview in a series of tweets.
COVID DEBUNKING DU JOUR: more on the MALONE affair— Nassim Nicholas Taleb (@nntaleb) January 2, 2022
Being a virologist or lab rat is nice & helps develop drugs, but doesn't entitle one to empirical claims.
A degree, even a Nobel medal are nice ornament to put above the fireplace. But science is *only* empirical/statistical. pic.twitter.com/hApmMTnPFZ
Ultimately all this debate and heated discussion throws further light on the parties involved, thus bringing more interested parties to Spotify to listen to Rogan.
While this could backfire if Spotify is petitioned to remove episodes, it’s arguably more likely to improve its bottom line by drawing in new subscribers.
Twitter bans accelerate
As the heat from the Dr. Malone/Rogan debate boiled over, Republican party representative Marjorie Taylor Greene became the next high-profile individual to receive a Twitter ban. Again this appears to be "for repeated violations of our COVID-19 misinformation policy." In response, Joe Rogan announced he’d joined GETTR, a conservative alternative to Twitter.
Within no time, he amassed over 8 million followers and word spread, bringing half a million new GETTR sign-ups within a few days.
If nothing else, this shows the power Joe Rogan holds. He’s not just the world’s number one podcaster but increasingly seen as a reasonable voice of truth in an otherwise murky quagmire of distrust. Rogan may well be Spotify’s golden goose and could help boost subscriber numbers going ahead.
Is Spotify a good investment?
The Spotify share price soared in 2020 only to fall 25% in 2021. It was heavily criticized for paying $100m to acquire the Joe Rogan podcast in 2020, but this may now prove a lucrative investment.
Joe is renowned for entertaining highly controversial guests, and Twitter has long been the place for polarising views to heatedly debate conspiracies. However, since Jack Dorsey left the helm of Twitter, stepping down as CEO in December, there’s been a notable rise in the cancellation of Twitter accounts. Many of these are linked to outspoken individuals, going against the grain in mainstream thinking. Some attempt to get followers to open their minds to challenge what they’re being told, and others are staunch in their beliefs.
However, Spotify is not immune to controversy itself. In July, a report emerged stating many Spotify staffers were unhappy with the host’s free reign. The company has also been criticized for scrubbing some of Joe Rogan’s more controversial episodes from its archives. But its CEO Daniel Ek has confirmed the platform won't remove any more episodes. And recent success with controversial interviews is likely to reaffirm this view.
Of course, Joe Rogan alone is not a reason to invest in Spotify. The company has many other popular offerings. Music is a vital part of our lives; some people can barely function without it, while for others, it offers occasional escapism. Spotify subscriptions are popular with families because they offer something for everyone. This includes independent and mainstream music, movie soundtracks, podcasts, and audiobooks.
Spotify has around a 25% gross margin. It pays royalties to labels and artists. Its monthly active users (MAU) have grown steadily to 381 million per month in Q3. Furthermore, its guidance is to top 400 million users by the end of the fiscal year. The company doesn’t clarify how many of these are daily active users (DAU), but in its Q1 earnings call in April 2021, Paul Aaron Vogel, CFO, said:
“The DAU-to-MAU ratio has been pretty steady both overall and for premium and adds, it’s actually, in general, been ticking up a little bit across both over the average of the last couple of quarters. So, we feel good about that ratio.”
Earnings per share turned positive in September 2021. This was partly thanks to Spotify’s Premium “Average Revenue Per User” (ARPU), which rose 4% in the three months to September 30. It is primarily attributable to an increase in ARPU for Spotify’s Family Plan, as a result of price increases and changes in Premium Subscriber mix driving an increase in ARPU for the Duo Plan.
Meanwhile, the company stated ad-supported revenue was boosted by “Ad sales from the Megaphone acquisition, The Ringer, and exclusive licensing of the Joe Rogan Experience along with other growth in podcast ad sales.”
Spotify is ambitious and is taking an aggressive approach to expansion. From a presence in 93 countries in 2020, it is on route to extend this to 170 countries.
31 FactSet analysts give an Overweight consensus rating to the stock with a target price of $307.49.
However, Spotify also has solid competitors. Apple's (NASDAQ: AAPL) hold on its iPhone/iPad Music and Podcast apps are a force to be reckoned with. Amazon’s (NASDAQ: AMZN) Audible rules when it comes to Audiobooks, and it also includes podcasts, while Amazon Prime now includes Music. Then there’s Alphabet's (NASDAQ: GOOGL) firm hold of YouTube video and music. These are three big players with endlessly deep pockets.
TWTR: The Investment Case
Twitter’s share price trajectory since its IPO in 2013 is full of peaks and troughs. The early years were tough for shareholders because the company’s stance on share-based compensation hurt Twitter shareholder returns.
In 2018 Jack Dorsey took a more orderly approach to awarding stock-based compensation to employees, and things were looking up. But TWTR stock fluctuated sideways once again until the pandemic took hold and tech stocks soared.
The TWTR share price is now trading 50% below its 52-week highs. This means it’s not trading at an unrealistic valuation, and there’s room for improvement in growing profits.
This is what shareholders want to see, and this is where the new CEO, Parag Agrawal, will hopefully deliver.
Twitter is upsetting many long-term users with its heavy-handed approach to account banning. But Agrawal is actively cracking down on misinformation, which will take time to get right.
Does this mean the Twitter share price will suffer if high-profile account cancellation is allowed to continue? There are two trains of thought.
Many see Jack Dorsey’s exit as a fresh start for Twitter. Plus, the TWTR share price is already far below its all-time highs and, therefore, may not be overvalued.
However, others are less convinced.
Twitter has helped individuals build a legion of followers central to their business and brand. But the risk that audience access could be pulled without warning is too much of a gamble. Therefore, these creatives are not wholly committed to Twitter but forced to spread their presence over multiple platforms or exit Twitter entirely.
Another thorn in Twitter’s side is Apple's recent advertisement-tracking privacy changes to its devices. This may reduce Twitter’s ability to profit from users clicking on ads, ultimately affecting its advertising revenue.
But it’s not all doom and gloom for the blue bird app. Last year it launched a Tip-Jar feature, allowing creatives to earn tips from their followers and fans. This is in addition to a subscription service called Twitter Blue which is available in Australia, Canada, the United States and New Zealand. Twitter Blue costs $2.99 per month and brings additional features and content to subscribers. This includes ad-free articles. Twitter passes a portion of the Twitter Blue revenue to publishers to make this possible.
The company is also ramping its focus on platform advertising as it strives to double its revenue within two years ($7.5bn+ by 2023).
Furthermore, Twitter just sold MoPub, its mobile ad platform, to game maker AppLovin for $1.05bn in cash.
Twitter is a hotbed of debate on topics of public interest, so, naturally, it’s become central to the opposing views on COVID-19, lockdowns, vaccinations, therapeutics and much more. However, where Twitter comes into its own is real-time reporting on important events. Therefore, its share price could be improved by the 2022 Winter Olympics and the FIFA World Cup in Qatar later this year.
39 FactSet analysts give a consensus Hold rating to TWTR stock with a target price of $64.
Both Spotify and Twitter are stock favorites among investors and analysts alike. Worth keeping on your radar in the months ahead.