Spotify Investors Have 99 Problems. Neil Young Is Not One of Them.

Beware false narratives. A false narrative is an unsubstantiated conclusion that snowballs (usually online). There might be kernels of truth in the narrative, but the viral nature of a false narrative makes the facts irrelevant. Case in point: Spotify’s financial performance.

During the week of January 24, Spotify’s stock value dropped amid the #BoycottSpotify backlash that happened after musician Neil Young demanded to have his music removed from Spotify because Spotify hosted Joe Rogan’s controversial podcast. A narrative rapidly spread that the controversy was hurting Spotify’s stock. But it was a false narrative.

In fact, Spotify’s stock price had been dropping 45% year over year amid disappointing quarterly results. What happened the week of January 24 was not exactly an aberration. It was also difficult to untangle Spotify’s declining stock price from factors such as an overall market cooling off, political instability abroad (e.g., the Ukraine/Russia crisis), economic uncertainty in the United States (e.g., inflation), and the ripple effect of Netflix’s gloomy forecast in its own disappointing quarterly earnings (Netflix is a bellwether for digital-first stocks).

The questionable nature of the “Neil Young crushed Spotify’s stock” narrative that proliferated among news media was underscored when the value of Spotify’s stock soared on January 31 — only to plummet again on February 2.

So what happened on January 31 and February 2?

Well, on January 31, an analyst issued a bullish analyst rating on the company. And we also possibly witnessed opportunistic investors “buying the dip” following the previous week’s stock plunge. But then on February 2, Spotify reported another quarter of underwhelming financial results, leading to another big drop in the company’s performance.

I’m not ignoring the potential for the Neil Young Joe/Rogan controversy to affect Spotify’s stock price, too. Hey, the controversy could be a factor. But we just don’t know to what extent the matter has played a role due to the other factors cited above. I suspect the false narrative with Spotify happened for a few reasons:

• It is a compelling story. David versus Goliath. The hippie versus the evil corporation. The truth seeker versus the spreader of false information.
• It is a negative story. People love to pile on when they see someone stumble and when stocks tumble.
• Digital, well . . . digital spreads narratives like brushfire. All it takes is one retweet to keep the narrative snowballing.

Spotify hasn’t commented on the potential impact of #BoycottSpotify. We don’t know, for example, how many people who use Spotify for free simply deleted the app (versus paid subscribers fleeing, which would be more serious). From a financial standpoint, we may not get any fact-based insight from Spotify for another quarter yet. Sometimes it takes time for the to facts to emerge.

One narrative you can be sure of: quarterly earnings move stock prices. It’s why disclosure rules exist.