Investor ValueAct takes Spotify stake to back cost cuts at the music streaming leader

INVESTMENT firm ValueAct Capital Management has built a position in Spotify Technology, 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 on Friday (Feb 10) in New York, touting the music-streaming giant’s innovative business model.

“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 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, 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 US 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 per cent of its employees, or around 600 people.

Spotify fell 2.3 per cent to close at US$120.83 in New York trading on Thursday, giving the company a market value of about US$23 billion. The stock has fallen about 28 per cent in the last year.

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-fuelled 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.”

Morfit also talked about being appointed last month to the board of Salesforce and how the stock had fallen 60 per cent 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, Seven & i Holdings and Nintendo. As of Sep 30, it held stakes in companies such as Fiserv, Seagate Technology Holdings and the New York Times, among others, according to filings.

Morfit was previously on the boards of companies including Microsoft. BLOOMBERG