Is SPOT Starting to Tank?

Stocks go up, stocks go down, can’t pick a top, can’t pick a bottom.  But it’s fun to guess.

Back in December when Spotify’s stock price hit $116 I said I expected it to retrace its price to the $120-$130 range before testing new lows.  OK, I said it would close at $95 in the near future, perhaps as soon as January based on technical indicators such as the “death cross” when 50 and 100 day moving averages cross to the downside.  So I was wrong about the timing, but the recent trading activity and momentum suggests the stock is behaving as expected.

Here’s my current chart:

Spotify 5-23-19

Note that Spotify is getting close to a second death cross at significantly lower levels than the first.  Note also that the 200 day moving average (which we didn’t have yet in December) is also pointed to the downside and is not, frankly, all that far away from the 50 and 100 day averages.

I would also point out that the stock is now trading about $10 below where it was before it listed (the “reference price”), which means, roughly speaking, that Spotify is actually valued lower than it was as a private company.  It’s also valued lower than it was in December and well below where it closed on its first day of trading.  Although not quite as much lower as it was in December.  All this for a company that still requires investment capital to survive as it has since it was founded.  If that keeps up, Spotify may soon enter the unicorn abattoir.

Remember–Spotify is not your typical IPO stock.  In fact, it is not an IPO at all, rather something called a “DPO” or a “direct listing”.  The difference is that a DPO enriches only the initial holders of the company’s stock as Marketwatch explains:

Direct listings differ from traditional initial public offerings, in that the company doesn’t issue new shares or seek to raise money through the process of going public. Rather, the listing makes it possible for existing shareholders to sell their shares to the public. After Spotify’s direct listing, many said the approach could be used by other startups, given the lack of share dilution and required lockup restrictions.

It’s also important to note that Spotify announced a $1 billion stock buyback plan on November 5, 2018 according to Variety:

Aiming to boost its flagging stock price, Spotify announced a plan Monday to repurchase up to $1 billion worth of shares.

So Spotify’s stock has continued to decline despite this price manipulation by the insiders.

We shall see.

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