We recently published a list of Top 10 Stocks to Buy According to SRS Investment Management. In this article, we are going to take a look at where Spotify Technology S.A. (NYSE:SPOT) stands against other top stocks to buy according to SRS Investment Management.
SRS Investment Management is a New York-based investment firm founded in 2006 by Karthik Sarma. The firm focuses on diverse investments across industries, including technology, media, telecommunications, consumer goods, and industrial sectors. It employs a research-driven approach to identify promising opportunities in global markets, leveraging its expertise to navigate complex financial landscapes.
As an investment advisory firm, SRS provides detailed insights into its business practices through its regulatory disclosures, although these are not verified by the SEC or state securities authorities. The firm emphasizes thorough due diligence when evaluating potential investments, gathering information on a company’s products, services, and market position. Its analytical approach includes engaging with industry experts, assessing supply and demand dynamics, and constructing financial models to project future performance and returns.
SRS primarily follows a global long/short equity strategy, aiming for high risk-adjusted returns while prioritizing capital preservation. The firm diversifies its investments across multiple industries and regions to mitigate risks. Its investment process involves extensive fundamental research, disciplined portfolio management, and strategic positioning in both long and short positions. This approach enables SRS to capitalize on market inefficiencies and generate sustainable returns.
Additionally, the firm runs a Focused Investment Program, targeting undervalued securities and acquiring significant positions at favorable prices. This strategy relies on active shareholder engagement, where SRS seeks positive responses from company management and stakeholders to influence corporate actions. The effectiveness of this strategy depends on how the market reacts to these initiatives and the willingness of companies to adopt changes proposed by shareholders. Through its meticulous investment approach, SRS aims to drive long-term value creation for its investors.
Karthik Sarma is an Indian billionaire hedge fund manager and the founder of SRS Investment Management, which he launched in 2006 after five years at Tiger Global Management. With a strong background in finance and investment, Sarma has also served as a director on Avis’s board since 2020, playing a key role in its strategic decisions. His educational background includes a bachelor’s degree from the Indian Institute of Technology Madras and a master’s degree from Princeton University. His professional journey began with three years at McKinsey & Co. as a consultant, where he gained experience in business strategy and financial analysis. He later joined Tiger Global Management, where he worked as a Managing Director from 2001 to 2005, honing his expertise in hedge fund management before establishing SRS Investment Management. Sarma’s ability to identify and capitalize on investment opportunities has positioned him as a highly influential figure in the hedge fund industry.
As an immigrant who moved to the United States for graduate studies, Sarma has built a reputation as a strategic investor with a disciplined approach to fund management. His experience across consulting, investment management, and corporate governance has contributed to his firm’s success. Through SRS, he continues to influence the financial landscape, focusing on long-term value creation for investors while maintaining a strong presence in key industries.
As of its latest filing for the fourth quarter of 2024, SRS Investment Management reported overseeing approximately $7 billion in 13F securities. The firm’s investment approach remains highly concentrated, with its top ten holdings accounting for 92.05% of total assets. This level of concentration suggests a high-conviction strategy, where SRS invests heavily in a select group of companies it believes offer strong long-term growth potential.
Our Methodology
The stocks discussed below were picked from SRS Investment Management’s Q4 2024 13F filings. They are compiled in the ascending order of the hedge fund’s stake in them as of December 31, 2024. To assist readers with more context, we have included the hedge fund sentiment regarding each stock using data from 1,009 hedge funds tracked by Insider Monkey in the fourth quarter of 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A person wearing headphones listening to an audio streaming service.
Spotify Technology S.A. (NYSE:SPOT)
Number of Hedge Fund Holders as of Q4: 101
SRS Investment Management’s Equity Stake: $178.14 Million
Spotify Technology S.A. (NYSE:SPOT), a Swedish audio streaming giant founded in 2006 by Daniel Ek and Martin Lorentzon, remains one of the dominant players in the music streaming industry. As of December 2024, the platform boasted over 675 million monthly active users (MAUs), including 263 million paying subscribers. The company’s strong performance in 2024 was highlighted by its first full year of profitability, with a net income of €1.14 billion. This milestone sent Spotify’s stock surging 13% as investors responded positively to its improving financial health and strategic expansions, making it 10th in the list of top stocks to buy according to SRS Investment Management.
In its fourth-quarter earnings report, Spotify Technology S.A. (NYSE:SPOT) exceeded expectations in several key areas. The company generated €4.24 billion in revenue, slightly surpassing analyst predictions of €4.19 billion. MAUs came in at 675 million, beating the forecasted 664.3 million, while net income for the quarter reached €367 million (€1.81 per share), a significant turnaround from the €70 million loss in the same period the previous year. The company also recorded a 40% year-over-year increase in gross profit, though the operating income of €477 million fell slightly short of guidance. Spotify’s ability to sustain user growth and profitability underscores the effectiveness of its long-term monetization strategies.
A major driver of Spotify Technology S.A. (NYSE:SPOT)’s success has been its expanding partnerships and innovative content strategies. Additionally, user engagement initiatives like Spotify Wrapped continue to play a crucial role in driving growth, with the annual year-end feature contributing to a record-breaking 35 million net increase in MAUs during the fourth quarter.
Looking ahead, Spotify projects further growth in 2025, estimating 678 million MAUs by the first quarter, with premium subscribers making up two-thirds of new additions. The expected revenue for Q1 stands at €4.2 billion, slightly above analyst expectations of €4.17 billion. Investor confidence remains strong, with Spotify’s stock gaining approximately 39% year-to-date as of early February. With a combination of strategic expansion, strong user engagement, and profitability, Spotify appears well-positioned for sustained success in the evolving digital media landscape.
Artisan Mid Cap Fund stated the following regarding Spotify Technology S.A. (NYSE:SPOT) in its Q4 2024 investor letter:
Among our top Q4 contributors were Atlassian, Spotify Technology S.A. (NYSE:SPOT) and Marvell Technology. Spotify is a leading global audio streaming franchise with over 600 million monthly active users. We believe its position in the supply chain is solid given a secular trend of fragmentation in the music industry and its internal product and pricing initiatives. Shares continued their year-to-date ascent after reporting strong earnings results, including strong growth in active users, premium subscribership and revenue. Importantly, the company’s profit margin is expanding nicely, and we believe it can rise further if the company increases prices, negotiates potentially better terms with labels and maintains cost discipline.”
Overall, SPOT ranks 10th on our list of top stocks to buy according to SRS Investment Management. While we acknowledge the potential for SPOT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SPOT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.