Streaming giant Spotify has made the loudest sound in the stock market this year compared to its rivals – but analysts warn that previously overlooked radio stocks could make a significant comeback in the near future.
Spotify’s price performance has been in a league of its own gaining 134% year-over-year (YoY) and closing at $385.20 far above its direct competitors. Audio-only stock SiriusXM has largely plateaued in recent months and is down 40% YoY closing at $24.10, while the similar iHeartMedia has faced more adversity with its stock price declining by 50% in 2024 closing at $1.52.
Despite Spotify’s consistent performance, analysts argue the streaming service lacks a long-term competitive advantage. Their success is largely based on their user experience. Spotify uses algorithms that allow users to create personalized playlists and suggest content in line with their existing tastes. Yet, the crux of their service is access to content that is widely available across other platforms – including tech giants like Google and Apple.
Now, smaller radio incumbents Sirius and iHeartMedia are throwing capital towards exclusivity deals and digital innovation to narrow the gap with Spotify – and Wall Street is beginning to take note.
“I don’t necessarily think that Spotify has such big or impenetrable advantages that would make others unable to compete,” said Matthew Dolgin, senior equity analyst at Morningstar Research.
“There are these other outlets that exist that can provide, for the most part, the same experience, certainly the same music library for 99% of the population. Ultimately, when you can provide the same things they have to imagine these others wouldn’t be able to reach (their level) – and I don’t quite see that at this point,” Dolgin explained.
SiriusXM in particular is putting the pressure on. This year they closed major deals with two of the top podcasts in the United States – including the world’s most listened-to female podcaster, Alex Cooper.
The direct poach from Spotify came at the end of a year contract in which Cooper’s podcast ‘Call Her Daddy’ was exclusively available to stream on Spotify. The new deal will give Sirius sole distribution and advertising rights for Cooper’s self-hosted show along with her entire Gen-Z podcast network ‘Unwell’. Her new deal with SiriusXM closed at upwards of 100 million dollars, according to reports.
Top investors have also been betting on SiriusXM. Warren Buffet’s Berkshire Hathaway increased their position in August by 262%. Still, analysts and retail investors remain cautious that the company will see any major revenue growth having lost 2% of its subscribers YoY, according to their latest earnings report.
Alex Meyer, 32, has been an investor in Sirus since he was 13 years old.
“In the past few years, they have continued to make poor programming decisions that have impacted their core customer base (Getting rid of a variety of channels in favor of artist-inflated programming, which costs money.) SiriusXM fails to understand its core demographic. They attract an older demographic, investor call after investor call, Jennifer Witz (CEO), states she wants to attract the younger generation with a premium product and has failed to deliver,” said Meyer.
Meyer also holds stock in iHeartRadio, a media company similar in business model. Though significantly smaller than SiriusXM in terms of revenue, iHeartRadio has been outperforming them in the market recently in its attempts to increase its subscriber growth through podcasting. iHeart’s podcasting revenue was up 8% according to its Q2 earnings report.
Sirius has not directly reported their earnings for their podcasting ventures – but the market has been following them closely. They’ve shown major stock price increases following announcements such as its acquisition of top Amazon podcast Smartless in January of this year.
Analysts have mixed opinions on their Spotify positions. A majority have predicted the stock will outperform its industry in the coming months, while about a third say to hold or sell.
David Trainer, CEO of Nashville, TN-based research company New Constructs thinks now is the time to sell the streaming giant.
“Spotify’s business has turned around pretty remarkably in terms of profitability, but the valuation is still way ahead of where we think it should be,” said Trainer “It’s still a very dangerous stock in our opinion.”
Investors and analysts alike will likely continue monitoring over the next few months to see which strategies pay off in the rapidly changing industry. Riskier moves by radio companies to keep up with Spotify could pay off, but the market remains skeptical.
“I don't have any reason to believe things won’t stay the way they are for Spotify with it pretty much outperforming the industry,” said Dolgin.