In the coming days I’ll probably do a bit of earnings commentary, sometimes like today as a summary of a few interesting reports, and sometimes as a more focused piece. With all the heavy hitters reporting on Wednesday, I’ll probably have to write throughout next week to cover everything. But let’s start with today.
While last week already had some significant reports, now is where it really gets interesting. The biggest mover before the open was definitely Spotify, and I have to admit it’s a company I really like. In many ways it reminds me of Netflix. Strong brand, large market share, over one third of global music streaming, and fast, consistent growth. But it’s also similar to Netflix in a way I don’t like, and that’s valuation.
Even after the stock dropped almost 20% and moved closer to its February lows, the forward P/E is still around 29x. The company is doing well, no doubt, and the multiple reflects that, but it shows once again that not every dip automatically creates an attractive entry point. I should also add that I still think Netflix is the better business overall. Not just in terms of valuation, with a forward P/E closer to 25x, but also when it comes to customer retention and moat. Speaking for myself, switching from Spotify to Apple Music feels far less significant than switching from Netflix to Amazon Prime. Netflix offers differentiated content, while Spotify mainly competes on user experience.
So why did the stock sell off? The report itself was solid, with beats across the board, but guidance was mixed. Not a bad quarter by any means, but clearly not strong enough to justify the valuation.
Another company that reported was Visa. With strong beats on both revenue and EPS, the payment processor defied the negative sentiment around the stock. The business remains in a duopoly with Mastercard, or at least an oligopoly when you include Amex, and global payment volumes continue to grow. There’s not much to worry about here. The market seemed to agree, and the stock moved up sharply after earnings.
Robinhood is a slightly different story. I talked about the company a few weeks ago as a kind of sentiment indicator for retail activity. It’s one of the main platforms for younger investors, and when it misses expectations, it often signals that retail participation is slowing. After a strong run over the past few years, driven by increased interest in self-directed investing, this quarter didn’t quite deliver. Revenue and EPS both came in slightly below expectations, and the commentary wasn’t particularly encouraging either.
Overall, it’s a quarter to forget and move on from. It probably doesn’t change the long-term story too much, but with a forward P/E of around 40, the stock still looks expensive.
