When a billionaire drops half a billion on a stock, my ears perk up faster than my son when he hears the freezer door open for ice cream. And when that stock is already up 645% since 2023? Yeah, now you’ve got my full, undivided attention.

Chase Coleman… the hedge fund guru behind Tiger Global Management… just went full Kobe in the 4th quarter on Spotify. This is definitely not some modest position adjustment either. Coleman went from barely noticing Spotify with a measly 2,560 shares to backing up the truck for 1.26 million shares last quarter. The question burning a hole in everyone's brokerage account is: Does Coleman know something we don't, or is he just late to the party?

I realize that Spotify isn't some hidden gem that Coleman discovered while dumpster diving through the NYSE. The platform boasts a staggering 675 million monthly active users… up 12% year over year. But here's where it gets interesting: Only 263 million of those users are premium subscribers. That's just 39% of users generating a whopping 87% of Spotify's revenue. The math here isn't complicated… The company is basically a premium subscription business with a massive pool of freeloaders waiting to be converted.

See, after years of "we're investing in growth" (corporate speak for "we're hemorrhaging cash but it's totally on purpose"), Spotify finally achieved something magical: actual profits. The company's operating margin has stabilized around 11%. Sure, Spotify's 30% gross margins would make most software execs break out in hives… paying for music rights is expensive, but Coleman clearly sees something worth betting on here. 

Before you dismiss Coleman as just another rich dude with more money than sense, consider this: The man's got receipts. Back in May 2023, Coleman loaded up on 1.58 million shares of Taiwan Semiconductor. Over the following year, that position grew by 63%.

Here's my hesitation though… Spotify's forward P/E ratio is sitting at a girthy 53 times earnings. For context, Spotify is growing revenue at about 16% this year. I don't need to be a Harvard grad to tell you that paying 53x for 16% growth is like buying a Honda Civic for Ferrari money.

But Coleman… with his fancy office and team of analysts who probably all have multiple monitors… clearly sees something beyond the spreadsheet. Perhaps it's the platform's stickiness factor. After all, switching music platforms is about as appealing as moving apartments.

Is Spotify too expensive right now? Probably. Would I bet against a billionaire who just dropped $560 million on it? Probably not.

Stocks.News has positions in Spotify and Taiwan Semiconductor mentioned in article.