I've been looking at SPOT as a case study for a few months now as a way of trying to understand market hype sentiment and eventual corrections.
In last year, SPOT reached an all time high around $790. Today, it sits at \~$500. Now admittedly, I bought a dip when it fell from 790 to 700 without proper research but luckily got out around 640 after evalutating it more properly. It was a considerable loss, but nothing compared to holding it to today.
Here's where I need help understanding:
Spotify Q3 earnings were good compared to the three before it. It finally beat EPS expectations and their earnings were way higher. However, the market seemed to remain bearish in response.
I know there has been harsher corrections historically and I personally think that Spotify is and was overvalued. My goal is to try and understand why the market behaved that way.
Spotify missed earnings expectations for the three quarters before it, but it continued to grow to a premium high. But when earnings were good, it proceeded to keep dropping into the price it is today.
Is it something beyond being a profitable business? Is it the fear of other competitors taking their market share? Or is it everyone just collectively realising it's overvalued? I'm wondering what caused the sentiment to switch from overvaluing despite bad earnings to selling after good earnings.
To clarify, this post is not for discussing whether SPOT is a good investment at the moment, it's more so to learn and understand what can cause corrections and things to look for when evaluating other companies as well.