Thursday's Headlines: Spotify Plays a New Tune

Thursday's Headlines: Spotify Plays a New Tune

Here were the biggest movers in the MyWallSt shortlist yesterday:

Moving Up ⬆️

Baozun (BZUN) +11.4%

DraftKings (DKNG) +10.7%

Roku Inc. (ROKU) +9.1%

Trip.com Group (TCOM) +8.8%

Farfetch (FTCH) +8.5%

Moving Down ⬇️

Smartsheet (SMAR) -6.9%

Zendesk (ZEN) -6.9%

Lovesac (LOVE) -6.3%

Upstart Holdings (UPST) -4.8%

Casey's (CASY) -4.0%

 

Here are the stories that you need to know ahead of market-open today, Thursday the 9th of June:

 

Spotify Turns to Audio Books 📖

Spotify has announced its intentions to expand beyond music and podcasts and into audiobooks. The news came from the company’s investor day this week, in which CEO Daniel Elk had this to say:

"We believe that audiobooks in their many different forms will be a massive opportunity… Just as we've done in podcasting, expect us to play to win."

What makes the move an interesting one for investors is that users will purchase audiobooks individually, outside of their Spotify subscription. This will provide a new revenue stream beyond advertising and subscription fees. After an aggressive expansion into podcasts over the past few years, audiobooks seemed like the logical next step for Spotify, whose quest to dominate audio continues. 

It has been a rough year so far for Spotify, which has been cut in half since the start of 2022 thanks to slowing user growth, as well as continued controversy from its exclusive deal to host ‘The Joe Rogan Experience’ on the platform. Never afraid to take on the big boys, challenging Amazon-owned Audible will be no easy task. However, consolidating music, podcasts, and now audiobooks all in the one place should look to give it an advantage.

 

Roku Stock Pops Amid Netflix Rumors 📺

Shares of Roku received an impromptu boost yesterday as the streaming services provider closed the day up over 9% and is currently up 0.14% pre-market. The reason behind this sudden surge I hear you ask? Growing rumors of a potential deal with streaming titan Netflix.

Talk of a potential takeover by Netflix was fueled by Roku’s abrupt decision to suspend its trading window for employees — typically something that only occurs in preparation for an event that will massively impact a company’s shares. 

Roku generates a significant proportion of its revenue from advertising, an area that Netflix has expressed a serious interest in delving into following recent subscriber churn. A purchase of Roku would see Netflix instantly add advertising to its already stellar arsenal.

It would also allow Netflix to adjust Roku’s promotional content and search functionality to favor its native shows, but this would be a treacherous move that would likely cause other streaming companies such as Disney or Amazon to leave the platform.

Any such deal would naturally be a huge boon for Netflix, but might not be as welcome for Roku. Despite being down over 55% year-to-date, this takeover would remove Roku’s inherent impartiality amongst the larger streaming services. 

Since this news broke, investors have been eagerly awaiting concrete updates to no avail. However, should it come to pass that an acquisition is indeed on the table, there would still be significant negotiations and regulatory compliances to account for.

 

Robinhood Faces an Existential Crisis 😱

Robinhood is getting nervous after the Securities and Exchange Commission (SEC) outlined proposed changes to stock-trading rules in the U.S. that could fundamentally alter its high-speed, zero-fee business.

Earlier this week, SEC Chairman Gary Gensler said that his agency was considering a package of rule changes to how shares are bought and sold on U.S. markets. Part of this would require brokerages to route individual investors’ orders into auctions in an effort to increase competition and transparency in the market — a proposal that has sent Robhinhood shares falling and prompted backlash from some of its top execs.

For modern digital brokers like Robinhood, a change like this would have a devastating impact on its core business. Currently, Robinhood routes most of its customers’ orders to a few big electronic trading firms such as Citadel and Virtu, who pay Robinhood a fee to execute the order. This process is known as payment for order flow and is how Robinhood makes most of its money —  72% of its net revenue in the first quarter of the year came from these fees.

In the wake of last year’s meme stock rally, companies like Robinhood have been facing increased scrutiny from market regulators who argue that the services they provide are not the most competitive for retail investors. 

Although these changes are just proposals, for now, the indication seems to be that companies like Robinhood are going to face more and more pressure from regulators over the next couple of years.

 

Want to find out more on Roku's stock movement, including our analyst Anne Marie’s detailed take? Click here to read our full Breaking News article right now.

 

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