Despite platform popularity, Spotify Technology (SPOT) is down big this year.
It’s risky but investors might be able to advantage the company’s controversies.
Ultimately, social winds have changed favorably for SHOP stock.
Close up view of a smartphone with Spotify logo on display. Laptop and headphone on background. New technology, social media, network, liquid music concept.
Source: Fabio Principe / Shutterstock.com
Whatever your opinions about media platform Spotify Technology (NYSE:SPOT), the underlying investment has become rather toxic. It really comes down to the hard numbers. On a year-to-date basis through the March 18 session, SPOT stock found itself hemorrhaging nearly 41%. But then, the natural question arrives: can Spotify rise above its largely self-inflicted controversies or is it doomed for more crimson ink?
On one hand, it’s difficult to ignore the malaise that SPOT stock is under. This is one of those cases — Digital World Acquisition Corp (NASDAQ:DWAC) is another — where the mixture of unpleasant rhetoric and a divided society can create massive problems for investors. And you hate to see it as a stakeholder because you want your investments to live or die based on financial considerations.
On the other hand, SPOT stock is tied to an incredibly powerful phenomenon, podcaster Joe Rogan. Seemingly having every card — as in a get-out-of-jail card — available, Rogan appears smooth as silk. Nothing sticks to the man and if you’re heavily exposed to Spotify, you’re hoping this trend continues.
As a Vox editorial described, it’s not easy to pinpoint what Rogan is all about. From a cursory look, he might seem like a provocateur, deliberately stoking tensions for their own sake. However, what vexes Rogan’s critics is that the podcaster simultaneously appears thoughtful and in many cases sympathetic.
Still, Rogan was already knee deep in the smelly stuff when he not only took an alternative view on certain health topics but also encouraged young adults to not take the coronavirus vaccine, instead suggesting rogue treatments.
Adding to the fire, Rogan also invited people — to put it diplomatically for sensitivity reasons — operating on the fringes of acceptable political dialogue. Just that alone is nowadays problematic, which is where SPOT stock undeniably features some vulnerabilities.
However, Rogan really found himself behind the eight-ball when — again for sensitivity reasons — he uttered divisive rhetoric. Outrage quickly followed, along with (perhaps coincidentally, perhaps not) a downturn in SPOT stock.
Investors have reason to be concerned about the controversy. When Papa John’s (NASDAQ:PZZA) founder John Schnatter used similar verbiage, he lost his position and standing. When NASCAR driver Kyle Larson also used controversial words, he lost sponsorship money and his ride before signing up with another team.
Saying such things isn’t about loss of reputation, though it naturally happens. It can also be ruinous financially, which is a problem for SPOT stock.
The Potential to Rise Above
According to InvestorPlace contributor Nicolas Chahine, he recognizes the problems impacting SPOT stock. “Initially it was from public concerns about presenting misleading covid-19 vaccine information. Then it morphed into using racist language in past episodes.”
However, Chahine also mentioned that despite its “recent bumpiness, SPOT stock has much more to offer.” Drawing largely on technical analysis, my colleague mentions that shares are holding well at key support levels. So long as a certain threshold isn’t breached, SPOT could swing higher.
Fundamentally, I think the data surrounding the media personality is too big to ignore. With an average of 11 million listeners, The Joe Rogan Experience is one of the most popular podcasts in the world. Given this massive footprint, it’s no wonder why Spotify is doing everything it can to keep him.
Just as importantly, Rogan may be a beneficiary of social dynamics. When the aforementioned John Schnatter used inappropriate and incendiary language, he suffered a severe penalty. But that was pre-Covid-19. Post-Covid, conservative voices have pushed back against what they believe is an unfair censorship protocol.
Case in point, controversial country singer Morgan Wallen received a warm welcome at an awards show recently after deploying divisive language last year. Thus, the scandal effect of divisive toxicity just isn’t as potent as it used to be, which cynically bodes well for SPOT stock.
Fortunate Timing
If we were talking about SPOT stock during the pre-pandemic days, I would probably be extremely cautious about the investment. I just point to what happened in the Papa John’s case as reference.
However, in the new normal where voices on the right have effectively counterpunched voices on the left, the negative incidents socially weighing on SPOT stock might not last indefinitely. What we do know is that Joe Rogan remains incredibly popular.
Therefore, it might be safer to bet on the Rogan effect than anticipating that his critics will silence him. So far, such tactics have failed to work and that’s great news for Spotify in the long run.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
