Investment firm ValueAct Capital Management has built a position in Spotify Technology SA, in a move that supports the music-streaming company’s strategy led by Chief Executive Officer Daniel Ek to tighten its spending and become more efficient.
(Bloomberg) — Investment firm ValueAct Capital Management has built a position in Spotify Technology SA, in a move that supports the music-streaming company’s strategy led by Chief Executive Officer Daniel Ek to tighten its spending and become more efficient.
ValueAct Chief Executive Officer Mason Morfit disclosed the position — which he described as the firm’s “newest investment” — during a presentation at a Columbia University event Friday in New York, touting the music-streaming giant’s innovative business model. Shares jumped as much as 4.7% to $126.55.
“Spotify’s superpower was combining engineering breakthroughs with organizational abilities — it organized creators and copyright owners to build an entirely new economic model that benefited everyone involved,” Morfit said in remarks at the Columbia Student Investment Management Association that were viewed by Bloomberg News. “During the boom, it applied these powers to new markets like podcasts, audiobooks and live chatrooms. Its operating expenses and funding for content exploded. It is now sorting out what was built to last and what was built for the bubble.”
ValueAct, which has pushed for changes at some of the world’s largest and most prominent companies, had a similar thesis last year with New York Times Co., urging the company to raise prices and improve margins to get more profit out of its subscription services.
Morfit didn’t elaborate on the size of the Spotify investment.
“We welcome ValueAct as an investor in Spotify,” said Adam Grossberg, a spokesman for Spotify. A representative for ValueAct declined to comment.
Spotify, which Morfit credited with inventing music streaming, made a massive commitment to podcasting beginning in 2019. It spent over a billion dollars acquiring podcast networks, a hosting service and the rights to popular shows like The Joe Rogan Experience and Armchair Expert.
The ballooning costs have tested investors’ patience. Shares tumbled last year as investors questioned when they’d begin seeing returns. Spotify executives said in June its podcast business would become profitable in the next one to two years. Last month, the company said it would cut about 6% of its employees, or around 600 people.
“ValueAct’s stake in Spotify lends credence to the growing confidence in Spotify’s profitability turnaround efforts,” Bloomberg Intelligence media analyst Geetha Ranganathan said in an note. “A moderation in podcasting investments could expand gross margin, while a reduction in head count and other cost cuts should pare operating losses and help the company reach break-even in 2024.”
Morfit mentioned Spotify briefly at the end of the presentation, which touched on how valuations are becoming more rational as businesses emerge from a venture capital-fueled bubble.
“There is a regime change happening,” Morfit said. “We are entering a great sortation between what businesses are built to last versus which ones were built for the bubble. What I see is we are shifting to a world where the rules matter again.”
Salesforce Appointment
Morfit also talked about being appointed last month to the board of Salesforce Inc. and how the stock had fallen 60% from its high. Salesforce is still being targeted by several activists investors including Elliott Investment Management.
“Now Salesforce is having to chart a new course that balances growth and profits, employee culture with employee efficiency,” he said. “It is in the cave. It is going to come out even stronger.”
ValueAct, founded in 2000, has pushed for changes at companies including Citigroup Inc., Seven & i Holdings Co. and Nintendo Co. As of Sept. 30, it held stakes in companies such as Fiserv Inc., Seagate Technology Holdings Plc and the New York Times, among others, according to filings.
Morfit was previously on the boards of companies including Microsoft Corp.
–With assistance from Amy Thomson.
(Updates with shares in second paragraph)
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