Twitter Inc (NYSE:TWTR) CEO Jack Dorsey’s Square Inc (NYSE:SQ) bought Jay-Z’s Tidal music service in 2021. It prompted a lot of speculation as to what Square might be planning.
Many believe it could be related to NFTs or tie in with Twitter Spaces, a social audio rival to Greenroom from Spotify Technology SA (NYSE:SPOT).
Jay-Z and Dorsey fanned those flames with a Space discussing future plans and Hova’s seat on the Square board. Tidal was marketed as a high-fidelity streaming service that pays artists more while giving fans better audio quality than Spotify offers.
If Square fully embraces the move to audio it has a giant to contend with: Spotify. How do they compare?
One is a financial technology company that offers a wide variety of payment services – the other is a streaming service trying to convince its users to socialize more. Square’s purchase hints at direct competition heating up soon.
The Rise Of Square: St Louis to San Francisco
Square was founded in Saint Louis, Missouri by Dorsey, Jim McKelvey, and Tristan O’Tierney in May 2010. Soon it relocated to its current headquarters in San Francisco.
Square’s mobile card reader transforms any mobile device into a credit card reader and allows small businesses and solopreneurs a wide array of mobile point-of-sale (POS) options.
This initial success of the Square Reader enabled the company to expand its offerings while disrupting traditional banking services. The company soon offered payroll, gift card processing, loans through Square Capital, and Cash App, which blew up to over 36 million customers by the end of 2020.
It also owns Weebly, a web-hosting service that makes out-the-box ecommerce easy.
With a focus in payments, it seems odd that the company would spend $297 million in cash and stock (as well as giving up a board seat) to buy Tidal. The move has analysts wondering about its future prospects with the failed streaming service.
Why Did Square Buy Tidal?
When explaining the Tidal acquisition, Dorsey stated that it’s meant to find new ways for artists to make money. Of course, that was the original goal of the company when Jay-Z and his artist collective bought it in the first place. And it never paid much money to artists because it never attracted a very large user base.
It’s available in 61 countries, but the company reportedly has between 3 and 5 million users, although the exact number isn’t public.
Because of Square’s expansive financial offerings, it’s hoping to be a new type of record label for musicians. And that’s not far off from the reality that rivals like Spotify (SPOT), Clubhouse, and even Facebook (FB) is aiming for. Over the next decade, we’re likely to see legacy music and movie labels replaced by tech platforms, but Tidal isn’t guaranteed success.
Square Has Already Grown 25x
Square (SQ) is a formidable investment that grew from around a $10 trading range in 2016 to over $250 per share in 2021. The company grew to over $125 billion in market capitalization after its $29 billion acquisition of Afterpay, a fintech company that pioneered “buy now, pay later” POS lending.
Its second quarter earnings statement showed 91 percent year-over-year increase in gross profit at $1.14 billion. And this doesn’t include its investment in bitcoin. The company is heavily investing in its network and product ecosystem to empower businesses to transact seamlessly.
Both its seller tools and peer-to-peer consumer payment app grew, making the company both a pandemic and recovery play.
However, it’s unclear whether the company can meet its lofty growth projections in a crowded field that includes the likes of PayPal Holdings Inc (NASDAQ:PYPL) and legacy banks.
Is Spotify Better Than Tidal?
Tidal has a massive library of over 70 million songs that play at 320 KBPS in the $9.99 per month Premium tier and 1141 KBPS in its $19.99 per month HiFi tier. The company’s standout exclusive album is Beyonce’s Lemonade, which is both an audio and visual album. It does have exclusive video content and in-person music events though.
Spotify, on the other hand, has the same music being streamed to a much larger user base of over 165 million premium subscribers. While it may be lower quality audio at a max of 320 KBPS, it also spent over $1 billion on exclusive podcasts, like Joe Rogan Experience, Call Her Daddy, and the Gimlet Media podcast network.
This mimics Netflix’s video streaming business model, where it brought talent in-house to minimize licensing payments. Despite these advantages, the company’s stock plummeted during its most recent earnings report.
Why Is Spotify Stock Down?
Spotify (SPOT) exceeded Wall Street expectations in its second quarter earnings report. It expanded its service to 80 new markets in the quarter, while $2.75 billion in total sales is a 23 percent increase from the prior year’s period. And net losses shrank from $2.26 to $0.22 per diluted share.
However, user growth slowed during the year, leading many bearish analysts to abandon the stock. It was caused by a temporary technical glitch, but some investors are no longer convinced the company’s in-house podcasting strategy will pay off in the long run.
Bullish analysts believe Spotify is undervalued, and it has a median price target of nearly $300 per share. This represents double-digit growth if it can regain investor confidence by year end.
Square Stock vs Spotify: The Bottom Line
Square made the move into streaming audio when it bought Tidal in 2021. The music streaming service has exclusive video content and high-fidelity audio that can’t be found anywhere else. However, it still lags Spotify in the audio streaming wars.
Spotify is following the Netflix model to bring content in-house and stop spending so much overhead costs on licensing. It’s investing in podcasters through its Greenroom app to remove the middleman and keep talent working under its banner.
But Square’s Tidal could be a prime partnership for Twitter Spaces, another Dorsey-owned company.
#1 Stock For The Next 7 Days
When Financhill publishes its #1 stock, listen up. After all, the #1 stock is the cream of the crop, even when markets crash.
Financhill just revealed its top stock for investors right now... so there's no better time to claim your slice of the pie.
See The #1 Stock Now >>The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.