Analyzing Beyond Spotify's Restructure: Unveiling 3 Stocks With Comparable Financial Challenges

Spotify Technology SA SPOT has been in the news spotlight lately for restructuring efforts underway at the company.

In what can be termed as a market-moving event, Spotify’s CEO Daniel Ek announced significant organizational changes, including reducing the company’s headcount by approximately 17%. 

Spotify’s recent earnings were positive. However, its cost structure remaining too high prompted this downsizing decision. Spotify tried out various cost-cutting measures over the recent past, but none have been effective enough to fulfill the company’s objectives and vision.

Eventually, the company had to go for a restructure leading to substantial layoffs, since people are a big cost component in any company operating in a services-oriented industry.

Typically, large cost structures directly impact earnings and limit the company’s ability to earn a growing margin on its top line. While Spotify has a positive gross margin profile (hovering around 24%-26% since March 2021), its EBITDA margin, EBIT margin and Net Income Margin are all in the negative for many quarters.

Also Read: Why Is Spotify Saying Goodbye to Award-Winning Podcasts? Inside the Strategic Shift

With Spotify’s situation in mind, Benzinga filtered stocks from the Information Technology and the Communication Services sectors in search of company stocks with financials reflecting a similar picture.

Comparable market capitalization and industry, along with a similar streak of Margins (gross income, EBIT, EBITDA and net income) could potentially put these stocks under the same financial challenges that Spotify is facing currently.

Riot Platforms Inc RIOT

A Bitcoin mining and digital infrastructure company focused on a vertically integrated strategy. Riot stock is up over 27% the past month, aided by the Bitcoin bull run.

However, a peek into the financials of the company noted a small positive gross margin coupled with a slew of EBITDA, EBIT and Net margins deep into the negative territory. Gross margins were erratic and a growing COGS coupled with a heavyweight SG&A and Dep. & Amortization expenses, prevented the dollars from trickling from the top line to the bottom.

Western Digital Corporation WDC

Digital data storage solutions company, Western Digital has seen a 50%+ rise in its stock price for the year-to-date. Wall Street sees the stock benefitting from AI trends and generative AI-driven storage demand.

The company’s financials, however, remain stressed. A positive but declining gross profit margin and negative margins beyond that, tend to put this stock under the same scanner as Spotify. The cost of revenues at the firm amounts to a staggering 96% of revenues. Add to it, R&D costs, and you have no scope left for a positive margin.

Roblox Corp RBLX

Up 20% over the past month alone, this video game developer offers a platform enabling users to create, connect and express themselves in immersive 3D experiences. Roblox has been gaining popularity worldwide and appeared to sport a healthy gross margin and cash flow profile.

However, the massive R&D costs at almost 45% of revenues, do not leave much room for top-line revenue to translate to bottom-line profitability.

Read Next: Analysts Rally Behind Spotify: Price Targets Raised After 17% Workforce Cut

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