Time for alarm bells? Woes for Spotify & Snapchat

They might have spearheaded consumer take-up of digital platforms, but Spotify and Snapchat face major issues.

Spotify has lost $9 billion in market cap value in less than three months.

At the end of the first day of trading on the New York Stock Exchange on April 3, Spotify’s market cap value was $26.5 billion, or $149.01 per share.

By July 26 it had peaked at $35 billion at $196.28 per share.

Wall Street got excited, predicting a level of $200 per share.

However, it not only never achieved it, but it has badly lost ground.

By midway through last week, Spotify’s market cap fell to $26.1 billion, with share price at $146.32.

In other words, $9 billion was wiped off its public valuation in three months.

That would certainly be good news for the likes of Sony Music Entertainment and Warner Music Group who divested all or some of their shares before then, for millions of dollars.

However, most analysts agree that Spotify’s slide is part of an across-the-board decline as global investors take a closer look at the US economy following President Donald Trump’s trade wars.

In any case, some analysts believe that Spotify management can reverse the company’s slide.

Morgan Stanley’s Benjamin Swinburne says a $225 price target is possible, as Spotify’ still has huge growth opportunities in smartphone-heavy markets as Mexico, Brazil and India if it gets local licensing rights, and the Swede’s renegotiating royalty rates with record companies in 2019 could boost its profits.

Meantime, multimedia messaging platform Snapchat’s latest financial postings show that it has lost 2 million daily active users from the previous quarter.

It had 186 million daily active users for the third quarter of the year, down from 188 million.

Parent company Snap CEO Evan Spiegel stated the company knew what caused the decline –Android phone users – and is working on a new app for that platform.

“The Android community represents a global growth opportunity for us, and we are making good progress testing the application in select markets,” he emphasised.

He pointed out that revenue was strong. It grew 45% to nearly $298 million, which was more than the $283 million that the market had predicted.

The company had $1.4 billion in the account at the end of the quarter.

TechCrunch says that Snapchat could well run out of money before its forecasted break-even in 2020 or 2021.

“Snap did successfully reduce the rate of its free cash flow burn from a loss of $234 million in Q2 2018 to a loss of $159 million in Q3,” it said

“But unless Snap bounces back, it will still need either an investor or acquirer to come to its aid by 2020.”

Snapchat expects further decline in user numbers in the fourth quarter of 2018.