SPOT - Possible Puts Play From Cancel Spotify Trend

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Hello, good people of Valhalla. My purpose here is to discuss the pros and cons of a puts play on $SPOT due to the recent news of artists abandoning the platform because of their disagreement with Spotify’s hosting of The Joe Rogan Podcast.

From The Washington Post 1/26/2022:

Spotify is in the process of removing Neil Young’s music two days after Young posted a letter on his website demanding that his catalogue be removed in response to “fake information about vaccines” on the platform.

Today, three days after Neli Young’s announcement, Joni Mitchell announced she is following suit (from The Wall Street Journal):

Joni Mitchell said she decided to remove all of her music from Spotify Technology SA in a move supporting Neil Young’s crusade against what he deems misinformation spread on Joe Rogan’s podcast.

This isn’t your buddy’s local stoner rock band boycotting one of the biggest distributors of music and podcasts in the world, but two of the most influential songwriters of all time. It would not surprise me if other artists, big and small, followed suit. Furthermore, I expect many fans of Young, Mitchell, and other artists who may hop on the boycott train may themselves hop aboard by cancelling their Spotify subscriptions. If this happens in the next week or two, I expect a decline in Spotify’s stock price. Since the Joni Mitchell news hit on the weekend, $SPOT may start to dive as soon as this Monday’s open.

This play has its fair share of risk, of course. Spotify’s stock price has already been beaten down significantly from its COVID-driven highs, losing nearly 50% of its value in the last year. Another dynamic in this play is the wildcard that is their earnings, expected this week on Wednesday, 2/2 AH. One of the only things that I don’t see priced-in is whatever effect this current boycott from major artists will have, and the extent of the boycott is still not known and developing. There’s a chance that Spotify will pull Rogan’s podcast from their platform to prevent any more major artists from boycotting Spotify, but given Rogan’s popularity, I see that as an unlikely scenario.

The puts to calls ratio looks the be about even for the February expiration dates. The premiums are, for lack of a better term, fucking insane. I don’t love the theta rate on them either, so this may be an extremely short-term play. I welcome any perspectives and critiques.

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Interesting thesis, thanks for sharing. I’m not sure cancelling has ever really impacted any megaplatform that much, as there are way too many content creators on them. Otherwise FB and Twitter would have the suffered much already. One could even argue that this will only put Rogan’s show on the radar of more folks. On average, I think what people frown on more than someone allegedly spreading misinformation is someone trying to muzzle others. Free speech and all. And if anyone knows how to monetize earlobes, it’s Rogan, so this might end up being a positive for SPOT.

Now, if earnings were not coming up, puts might have still been a safe bet, as SPOT is on a downtrend, and this is negative news, so at best it would have kept going down as much, if not more.

However, the IV crush after earnings can be brutal. SPOT is not a totally hopeless case - it has $10B in revenue, just about breaks even, and has a $30B market cap. Unless you think they will report rather badly, and the drop will be more than what is implied by the option premium, there is a good chance puts will end up losing value after earnings. As tends to happen often.

For these reasons, personally, I will not be entertaining puts.

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It should be noted Neil Young and Joni Mitchell have a combined 10 million listens per month.

Joe Rogan has over 11 million listeners per episode with three to five episodes per week.

While this publicity may have a bit of negative sentiment, I’m not anticipating a huge sell off as Rogan is way more popular than anyone threatening to remove their name from Spotify.

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IF there was a good chance Spotify would pull Rogan, I’d think about puts. But, you’re gonna need a lot more artists to push back against Spotify to get them to do that, Rogan’s just too big.

That, coupled with earnings this week, makes this pretty risky. Best case scenario: buy puts Monday morning, stock takes a hit, sell before Wednesday. I don’t see this affecting earnings nor guidance, so unless Spotify shits the bed for other reasons earnings will probably be mellow. I doubt Spotify is gonna announce a mass user departure in their ER just a few days after this feud started.

If you wanna play this, and think it might turn into something bigger in the next week or two, maybe wait until after earnings before entering. Or start a small position and (likely) average down after earnings. Personally I think it’s risky to bet against Rogan or his fanbase.

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I think I’d rather wait for ER to pass, and then play the post-ER trend combined with keeping up with news updates on the Joe Rogan situation.

Setting this to Watching.

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Like @MENoir said, the snowball effect of artist leaving the platform is going to have to be MASSIVE to see an impact on the price action. I dont know how pulling off Joe Rogan would help aswell considering it would be a perceive has a major free speech issue by some even if its not the case (i.e Spotify being a company Who can decide to not do buisness with an individual).

How all of this would be perceived by whales investors?

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Rogan got like $100 million from Spotify to be exclusive on their platform. He’s not going anywhere anytime soon.

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This is a non factor on price action without more high profile people leaving spotify.

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Thanks for all of your responses! After reassessing everything, I don’t think that there’s a solid play here at the moment. I’m keeping an eye on the news, but I think there’s a good chance that the news this weekend will fizzle out into nothing. We’ll see what earnings brings for Spotify, I suppose.

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Spotify released some statements about the controversy and will now put warning labels on content. When asked if bans where on the table they basically said no as the content creator will just go elsewhere and nothing will have changed but their income revenue from them so why take action?

If this stance changes and we start seeing permanent bans from the platform of big names we may see a change in price. But as it stands I guarantee most listeners under 35 dont even know who those two people are.

https://www.cnn.com/2022/01/30/business/spotify-rules-joe-rogan-reliable-sources/index.htm

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This thread is an example of why I love this forum format. Started with a very valid idea and we worked out the possibilities, after our discussion it was believed that how Rogan kinda had the upper hand, and then today he releases the apology which sends the stock up. We have a really good way of working together to figure things out. I appreciate this thread and the thought behind it.

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Citi also upgraded from Neutral to Buy today.

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Wholeheartedly agree. The forum really enables us to refine down ideas in a format that isn’t so temporary. Fantastic work to everyone.

I will say that someone floated the idea of this being a longer out puts play and it’s entirely possible that might be the case.

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Wanted to share some related news I accidentally posted under the wrong thread: Dwayne ‘The Rock’ Johnson Wants to Join Joe Rogan on His Podcast Amidst Boycott Controversy - EssentiallySports

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Is it rational to pursue puts on SPOT on the basis of 100 Joe Rogan episodes being deleted? Already asked in discord, but this is for record.

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Quick google search said there were 1,770 episodes… and also the ~100 that were pulled were older episodes. So no, I do not think puts would work for just that sentiment.

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However, you would also have to acknowledge that it may not be the quantity of episodes removed that matters, but rather reasoning behind it. I think many despise censorship by organizations so regardless of the amount of episodes cancelled relative to the total present, don’t you think the negative sentiment might be strong from that alone? This is part of what happened to FB and TWTR.

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spotify is in a lose lose position here, but so far i think the negative sentiment is at fringe mostly.

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So, last night a social media rally defending Joe by all of his friends began. Several, mainly Brenden Schaub, have stated they will pull their podcasts off of Spotify if Joe is messed with further.

If Joe’s close friends begin pulling podcasts, that would remove several of the most popular comedy podcasts on the platform, to include

The Fighter and The Kid - Brenden Schaub / Bryan Callen
Congratulations - Chris Delia
The King and the Sting - Brenden Schaub / Theo Von
This Past Weekend - Theo Von
Uncle Joey’s Joint - Joey Diaz
Skeptic Tank - Ari Shafir
Two Bears One Cave - Tom Segura / Bert Kriescher
Your Mom’s House - Tom Segura / Christina P
Bertcast - Bert Kriescher
Conspiracy Social Club - Bryan Callen/Sam Tripoli
Where my mom’s at - Christina P
Dr. Oz After Dark - Dr.Oz
The Lex Fridman Show
The Tim Dillon Show
Andrew Schulz

And the list goes on.

If they truly pull their episodes from Spotify, the amount of people Joe helped start podcasts or recording studios for podcasts is very large. I don’t see how it wouldn’t hurt Spotify.

Definetly worth a watch now

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That’s something you will need to do research on. Find out what percentage of Spotify users listen to Joe Rogan, or at the very least what percentage of overall listeners he makes up.

A quick google search this morning (forgive me I haven’t had my coffee yet) claims 19% of users have cancelled, or plan to cancel their Spotify over the Joe Rogan controversy. Again, finding actual percentages is going to be important as many people “claim” they will do something, but never follow through.

One thing is for sure, you can bet their earnings call is going to be a circus.

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