Executives at Spotify Technology (SPOT) have lost their way, and this is not due to podcasts or controversy.
The current problem is a lack of focus, and it's much harder to fix.
The company announced on Tuesday that Car Thing — Spotify’s hardware answer to Apple’s (AAPL) CarPlay and Android Auto — was finally hitting the market.
- That’s right ... Spotify now makes hardware, and it’s going to be a big mistake for the business.
The best companies in the world find a niche, build competitive advantages and then find new opportunities to leverage those advantages.
It is simple. It is time-tested. It works.
Car Thing is far from that goal.
It’s an $80 plastic device with a touch screen the size of a credit card, and full access to the mobile Spotify app. In theory, the contraption brings Spotify inside vehicles.
Yet the device really is no more than an expensive remote control for a smartphone that requires connectivity, data storage and computation.
Source: Motor1
It’s a dumb machine in an era of smart things.
It’s also the kind of launch immature companies undertake when executives are looking for a second act.
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More importantly, Car Thing is the worst version of Spotify.
Apple and Alphabet (GOOGL) have made tremendous headway into vehicles, and the reality is that Spotify won’t be able to compete.
- Consumers demand CarPlay and Android Auto come bundled with their modern, connected cars and trucks.
These software suites are the easiest way to access Google Maps, Waze, Apple Music and Spotify— the infotainment heavyweights.
- Car Thing offers none of this, just a slow Spotify experience reminiscent of 2010.
Ironically, the device is built specifically to target that era. Older vehicles do not have modern infotainment systems.
Car Thing puts Spotify in those cars and trucks, assuming the customer also has a modern smartphone.
And that is the elephant in the room.
If a customer has an iPhone or Android, Car Thing is completely pointless.
Set to driving mode, Google Maps on Android fully integrates with Spotify. The software offers full voice control of selection and playback.
It exceeds the capability of Car Thing, it’s free and it can access the superior smartphone processor.
Spotify Is Missing the Spot
The launch of Car Thing shows that Spotify executives are flailing.
As the streaming business matures, they’re clearly looking for new businesses to growth, yet targeting older vehicles is perplexing. That market is naturally shrinking.
These corporate dalliances can be costly.
Investors mauled Snap (SNAP) when the company launched Spectacles, a pair of physical smartglasses to complement its popular Snapchat mobile application.
More recently, the same fate smashed PayPal Holdings (PYPL) as executives at the online payments specialist launched a bid to acquire Pinterest (PINS), a social media business. And DraftKings (DKNG) was squashed after execs announced a $22.4 billion bid for Entain, a British gambling outfit three times its size.
The Car Play diversion could not come at a worse time for Spotify shareholders.
The stock is down 36.4% in 2022, after ending last year on a sour note, too. Shares traded last November at $301 and have fallen all the way down to around $148 as of writing.
It also did not help that content from Joe Rogan came under fire. Spotify executives paid the controversial podcaster $200 million over 3.5 years, according to a report in The New York Times.
Rogan is not the problem. His show is still the internet’s top-rated podcast.
Spotify is suffering from slowing average revenue per user growth.
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The company reported earlier in February that premium subscribers grew to 180 million, up 16% year over year. However, that growth was supported by large promotional campaigns in Southeast Asia, India and Brazil.
Average revenue per unit (ARPU), a key metric of the ability to monetize users, grew at only 3% versus a year ago.
In my Weiss Technology Portfolio, I am zoned in on top metrics, and my subscribers are sitting on open gains of 370% and 354%, just to name a few. If you’d like more information, click here now.
At the current price of only $149.38, SPOT trades at 139.3 times forward earnings and 2.7 times sales.
Given the currently slow ARPU growth, shares could easily trade back to the $130 level.
Best wishes,
Jon D. Markman
