Can AAPL catch SPOT?

Spotify's stock is on fire this year, up +81% and trading near all-time highs.

This Bullish action is due largely to the way Spotify is growing. Right now, its premium revenue growth is outpacing its ad-supported revenue growth: +22% YoY to +12% YoY -- i.e. Spotify users aren't just hooked, they are willing to pay more (monthly) for the premium experience. (And ad spending may actually improve in the back half of this year).

App engagement metrics support the stickiness of Spotify's platform. Total session time has ticked up substantially, up +12% YoY -- averaging ~24 minutes per day per user.

So do happiness levels. Spotify happiness sits near 70% positive, with users praising the streamer's UI and always-right-on song recommendations.

Apple shockingly is playing catch up. And trying to make the experience for Spotify users not as great. For instance, users will no longer be able to control the volume of connected devices playing Spotify with the physical volume buttons on the iPhone. Consumers also claim Spotify over-drains their iPhone batteries vs. what they would expect for music streaming.

While Apple music is beating Spotify in new web traffic (+4%), it has a lot of ground to cover, comprising only 9% of consumer web traffic vs. Spotify's 68%.

Looking ahead, investors in the bullish camp claim Spotify is just getting started. As is ushers in more premium subscribers and leverages AI to cut costs and headcount, its net income is soaring: $505 million over the last year vs. the $776 million annual loss in 2023. Its custom algorithm for each user is addictive, and it prides itself on a variety of subscription levels to fit different user segments, from students to families.

Bearish investors point out Spotify's miss in Monthly Active Users last quarter (MAUs reached 626 million in the quarter bs. the 631 million projected due to "continued recalibration" of marketing activities. And its current valuation.

We see Spotify as extremely sticky -- who wants to transfer their entire music library and leave the platform they feel "knows them?" Breakups are tough. But rest assured Apple will be trying to make it as tempting as possible. We will be monitoring for continued traction here -- so far, we don't see any major issues for SPOT but will be watching for signs of price sensitivity and churn from consumers.