Spotify doesn’t deserve the identical treatment as other streaming corporations, based on a growing number of individuals on Wall Street. “I believe that’s essentially the most interesting name that folks have completely written off,” LightShed Partners’ Wealthy Greenfield said last week on CNBC’s ” Squawk Box .” Shares of the streaming company are down roughly 50% this 12 months, as investors, mindful of an era of rising rates of interest, dumped shares of tech stocks and other growth names. Audio leader Still, some investors say that Spotify mustn’t be tarred with the identical brush as Netflix or other streaming corporations which have cratered this 12 months due to weak user numbers. These proponents say Spotify has cornered the market on music worldwide, and will capture more of the overall audio market because it expands into podcasts and audiobooks. “They’ve little or no competition. They dominate the category,” Greenfield said. “Yes, it is a low base, but they’re definitely growing faster than peers.” Those rivals include well-heeled competitors comparable to Apple, Amazon and Google-parent Alphabet, all of whom have made forays into streaming music and podcasts, and will leverage their businesses to assert more market share. Nevertheless, Spotify has maintained its leading position. Last week, the streaming company beat revenue expectations in its second quarter earnings , and reported that it added 433 million monthly lively users, which is nineteen% higher year-over-year, and 5 million above guidance. Meanwhile, paid subscriber growth expanded by 14% year-over-year to 188 million. Shares surged following the quarterly earnings report. “While the macro environment continues to present uncertainty, we’re currently not seeing any material impact on our expectations for users or subs growth from the economic downturn,” Spotify CEO Daniel Ek said in essentially the most recent earnings call. “In fact, we’re seeing several markets trending ahead of our forecasts.” “We’re confident in our ambitions to get to 1 billion users by 2030, while at the same time we are also focused on omproving our gross margins and continuing to generate positive free money flow,” he added. Morgan Stanley analysts expect that Spotify can sustain a greater than 30% market share in streaming over time, based on a recent note. “They’re the leader in that global TAM,” said Evercore ISI’s Mark Mahaney, referring to the overall addressable market. “We have run survey work on Spotify for years, they usually are the leading player on each Android and Apple devices. So, there are more individuals who subscribe to music or join music on Apple phones using Spotify than actually Apple Music.” Meaningful margin expansion To be certain, other investors are critical of Spotify, questioning whether the business can ever achieve durable profits , especially as recession concerns loom and rates of interest rise. “While we consider there stays material user growth left for Spotify we highlight that many investors query whether Spotify will ever find a way to generate significant lasting profitability,” wrote Pivotal’s Jeffrey Wlodarczak in a July 28 note. The analyst has a hold rating on the stock. The streaming company has to take care of powerful music labels that might renegotiate deals and limit gains in Spotify’s profits, based on Pivotal. Nine out of 10 songs streamed on Spotify are owned by just 4 music corporations, the report said. At the identical time, because it went public in a direct listing in 2018, Spotify has did not expand its low gross margins, at the same time as its revenue base has doubled, based on Evercore ISI’s Mahaney. Gross margins for the corporate declined to 24.5% within the three-month period ending in June, down from 24.9% in the primary quarter of 2022. They previously reached an all-time high of 28.1% within the second quarter of 2021. Still, at Spotify’s June Investor Day, CEO Ek noted that gross margins from music are “steadily climbing,” at the same time as they’re dragged down by the corporate’s podcast investments. Since its public debut, Spotify has gone on a spending spree, snapping up podcasting networks comparable to Gimlet Media, in addition to the rights to stream Joe Rogan’s podcast. “There’s two possible explanations for this lower gross margin result,” Ek said on the event, based on a FactSet transcript. “One could be that Spotify just is not that good of a business. And the opposite is that we’re investing behind the strength of our business to make the business greater, stronger and more resilient; and I’ll share with you today that the music business is doing a lot better than you’re thinking that.” For Evercore ISI’s Mahaney, which means there is a “gross margin inflection point” coming for Spotify, as the corporate starts to tug back on podcast investments, and because it continues to attain scale in its promoting revenue business. “If that is true, then gross margin should expand next 12 months,” said Mahaney.