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Revisiting Spotify - Has the thinking changed?

In the past two years, Spotify has lost half of its value and then doubled in price. Leaving Spotify shareholders exactly where they started, maybe with a sore neck from the whiplash.

But in that time Spotify has changed as a business. Two years ago, in mid-2021, Spotify was pushing into podcasting - Gimlet was acquired for $230 million, Joe Rogan’s deal is reported to be over $200 million, the Sussexes got a $20 million deal, and the Obama’s $25 million. In total, Spotify was estimated to have spent over $1 billion on exclusive podcast content. Fast forward two years and Spotify is moving away from podcasting, firing the architect of their exclusive content policy, Dawn Ostroff, and laying off hundreds of staff. At the same time, it is pushing harder into audiobooks and openly challenging Apple about its App Store practices in the audiobook space.

Spotify as a business is changing, albeit still underpinned by a dominant music streaming franchise. So for investors in Spotify, the question becomes: as the business change does the investment thesis remain?

This article is one such investor reckoning with their Spotify investment. It starts by looking at their original thesis for investing in Spotify and then considers how much has changed within the business over the past two years. It is an important reminder that we need to be periodically revisiting our investment thesis’s as our businesses and their competitors are constantly evolving.

Boyar Research: TopGolf Callaway Brands (NYSE: MODG)

For the golfers reading this, you’d be familiar with the Callaway brand. Last year, the golfing equipment giant finalised their acquisition of TopGolf. For those unfamiliar, this report describes TopGolf as, “a tech-enabled golf entertainment business that generates the vast majority of its revenues from large venues that are akin to a mix between a bowling alley, a nightclub, and a driving range.” That basically sums it up. This analyst report takes a look at the newly combined company - renamed from Callaway to TopGolf Callaway Brands - and considers it as a potential investment.

Boyer Research, the authors of this analyst report, believe that there is material upside from the current share price. Today, the company’s share price is ~$19 and Boyer believe that it is worth more than $40.

Reading over this report, there is a big red flag for us. Investors need to watch out for companies that are on an acquisition spree. Often, acquiring companies can make metrics look great - revenue will be growing and the per share metrics will be as well (as long as the acquisitions were made with cash and debt rather than by issuing new shares). But inorganic growth can only take you so far. Reading this report, Callaway has had some success (TravisMathew acquired in 2017) and some struggles (Jack Wolfskin acquired in 2019). But for us it is the frequency of the acquisitions that is the watch out. In this article, Boyar share some thoughts on Callaway’s acquisition strategy and where their biggest acquisition to date - TopGolf - may fall in time.

They say invest in what you know, and after visiting a few TopGolfs on our recent trip to the United States, we can certainly vouch that it’s a lot of fun. Whether or not it’ll be a good investment remains to be seen. But golf is changing and embracing the idea that sport is an entertainment product (see: the new Indoor Golf League by Tiger Woods and Rory McIlroy or Tiger’s new golf-entertainment business PopStroke). TopGolf is right in the middle of this shift, and now one of the world’s biggest golf brands, Callaway, has decided it wants to ride this wave as well.

How Will Artificial Intelligence Change the News Business? Here are three theories of the case.

Plenty of white collar workers have been dusting off their CVs this year as the frenzy around ChatGPT and generative AI reaches a fever pitch. And while AI’s disruption will likely touch every office around the world, there have been none more nervous than journalists and the media organisations that employ them.

ChatGPT presents a unique threat to the news business. In plenty of industries, ChatGPT threatens workers, promising a future where employers are offered an alternative to human labour (if they’re willing to deal with the annoyingly-frequent AI hallucination). But, at this stage, it is only in the news business where ChatGPT threatens the economic model of the industry as well.

Simply, in the past 10 years, news organisations have driven all of their incremental revenue from web traffic. Google and Facebook, for all their flaws, have been the biggest source of clicks and those clicks have been monetised with display ads and sponsored content. However, ChatGPT threatens to take those clicks away. By finding the information for us, generative AI will take away our need to click through to a website. And with it, it will take away the ad dollars that our clicks deliver.

The media industry isn’t taking this lying down. In the United States, a coalition of giant media organisations including IAC, the New York Times and News Corp (backed by some of the world’s most powerful billionaires including Barry Diller and Rupert Murdoch) are reportedly preparing a lawsuit challenging how these AI models have been trained. They believe their intellectual property has been unfairly used and reportedly will be asking for compensation that could “run into the billions”.

While media billionaires and tech billionaires make their lawyers rich battling it out in court, it is undeniable that the news business is going to change. This article from New York Magazine has canvased the experts and shares three theories on what this change will look like.

Will AI replace journalism? Will it improve it? It is too early to tell and it will likely take different shapes at different news organisations. But there is no doubt that it will be the front line of the AI disruption as it changes both how journalists work and how media organisations make money. We’re only at the very early days of this disruption.

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