JDP Capital is Confident in Spotify’s (SPOT) Promising Future

JDP Capital Management, an investment management firm, published its fourth-quarter 2020 investor letter – a copy of which can be downloaded here. A spectacular net return of 109.4% was recorded by the fund for the year end 2020, outperforming its S&P  500 benchmark that returned 18.4%. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

JDP Capital Management, in their Q4 2020 Investor Letter said that their investment in Spotify Technology S.A. (NYSE: SPOT) has been their top holding since 2018. Spotify Technology S.A. is an audio streaming media service provider that currently has a $59.7 billion market cap. For the past 3 months, SPOT delivered a decent 31.31% return and settled at $315 per share at the closing of January 29th.

Here is what JDP Capital Management has to say about Spotify Technology S.A. in their investor letter:

“Spotify has been a top holding since 2018 and I expect our future will become even more aligned with this business as time goes on. Although the stock is up about 200%+ since our initial investment, we think founder-CEO Danel Ek is building a company that will be worth multiples more than the current $62 billion market cap.

Spotify’s start-up-like sense of urgency to deliver new products and tools that increases the value proposition to subscribers is impressive and differentiated from the “me too” music/podcast catalogues within big-tech bundles.

In 2020 Spotify executed on a laundry list of strategic investments including: high-profile original podcast content, acquisition of podcast publishing software companies and assets, signing Universal Music to the two-sided marketplace, and filing a patent for distributing music within social videos.

Strategic investments in podcast content is a way to grow and retain subscribers and increase the value proposition to anyone wanting access to the ears they control. It would also make sense for the company expand further into adjacent segments like audio books and news.

I wrote about Spotify in the 2019 Annual Letter and our excitement around the company’s transition from a music streaming app to a dynamic audio platform that also includes podcasts, a marketplace for artists to engage with fans, and a world-class advertising business.

We own Spotify because the company’s economic power as the gatekeeper between creators and consumers is growing faster than reported financial metrics suggest.

Our bet is that Spotify will be able to extract much more economic benefit from the music labels, content creators and advertisers as time goes on.

The more contrarian component to our investment thesis is that we think Spotify will ultimately tilt the balance of power with the Major record labels enough to unlock gross margin potential that looks more like a technology company than it does today.

Spotify had 320 million users as of September 30, 2020 and on a trajectory to reach 1 billion users. The business model is simple: the more reasons users have to use the app, the more frequently they will engage with it. The more engagement, the higher the lifetime value of the customer base. The more engaged users become, the more artists and advertisers depend on Spotify’s toll bridge to the consumer.

An example of recent progress that we are excited about is the company’s launch of the long-discussed strategy to charge music labels and content owners for access to subscriber data.

Products like Spotify for Artists are important because they give the company leverage to monetize growing subscriber engagement driven by new celebrity podcast partnerships such as Joe Rogan or Michelle Obama.”

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Last December 2020, we published an article telling that Spotify Technology S.A. (NYSE: SPOT) was in 44 hedge fund portfolios. Its all time high statistics is 67. SPOT delivered a massive 122.93% return in the past 12 months.

Our calculations show that Spotify Technology S.A. (NYSE: SPOT) does not belong in our list of the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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Disclosure: None. This article is originally published at Insider Monkey.