Activist investor ValueAct takes stake in Spotify

Activist investor ValueAct has purchased a stake in Spotify, with the head of the fund arguing that costs at the streaming music service had “exploded” as it built out its podcast business.

Mason Morfit, head of the San Francisco-based investment firm, disclosed the position at a conference hosted by Columbia University on Friday. Morfit did not reveal the size of the stake but said it was ValueAct’s newest position.

ValueAct’s investment is believed to mark the first time a prominent activist investor has publicly disclosed a stake in Spotify, and comes just weeks after the music streaming group announced job cuts and a restructuring in an effort to reduce costs and stem losses.

“Spotify’s superpower was combining engineering breakthroughs with organisational abilities — it organised creators and copyright owners to build an entirely new economic model that benefited everyone involved,” Morfit said.

“During the boom, it applied these powers to new markets like podcasts, audiobooks and live chat rooms. 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 has pushed for change at other large publicly traded media companies in the past. Last year it bought a stake in The New York Times Company, pressing leadership of the news business to move subscribers to higher-priced bundles to boost revenues.

“We welcome ValueAct as an investor in Spotify,” the company said in a statement. ValueAct declined to comment beyond Morfit’s remarks.

Spotify in January announced it would cut 6 per cent of its employees in an effort to rein in costs, which had grown significantly as the audio streaming service expanded rapidly in podcasts and audiobooks.

The push, including large deals with people such as broadcaster Joe Rogan, helped bolster Spotify’s advertising business and pushed revenues last year up more than 20 per cent to €11.7bn. However, losses ballooned as the company increased its spending, with the business reporting a €430mn loss last year.

Daniel Ek, chief executive, told investors 2023 marked “a new chapter for us”, as he restructured the company’s business lines to prioritise “speed and efficiency”. The chief content officer, Dawn Ostroff — a power player in Hollywood who joined Spotify in 2018 from Condé Nast Entertainment — agreed to leave as part of the reshuffle.

The results nonetheless underscored Spotify’s reach, with the company counting nearly half a billion users. Analysts at Morgan Stanley said they believed it was possible “2023 will be the year this business finally marries the consistently strong user and revenue growth trends it has posted for years with a ramp towards meaningful profitability”.

Spotify shares closed 3.6 per cent higher on Friday, bringing their year-to-date gain to more than 58 per cent and giving the company a market capitalisation of about $24bn. The advance comes alongside a broad resurgence in the stocks of other high-growth businesses that last year were broadly dumped by investors as interest rates rose.

Despite the recovery, Spotify’s value remains a fraction of its record high in 2021, when the business was valued at just under $70bn.