Spotify shares fell as much as 6% on Wednesday (July 14) following a report by analysts at Bernstein that questioned the companies’ podcast investments in a slowing podcast market.

“With all the intense focus on how engagement will hold up for video streaming and video games as the pandemic rolls off, we have found few investors asking that same question about podcasting,” the reports says. “Which ought to matter a lot, given how much focus and capital Spotify is devoting to it.”

Spotify shares finished the day down 4% at $262.79. The Nasdaq, on which Spotify trades, was down 0.2% while another music streaming company, Tencent Music Entertainment dropped 2.3%. Bernstein has a price target of $208 and an “underperform” rating for Spotify, making it one of four out of 29 analysts tracked by Refinitiv to give Spotify either an underperform or sell rating. The 29 analysts’ median price target is $339.62, 28.7% above Wednesday’s closing price.

The data is not encouraging, says Bernstein. The problem is podcast year-over-year growth has stalled and even declined. Global podcast listening for the top 10 publishers jumped from 26.7% year-over-year growth in March 2020 to 51.5%, 52.2% 63.6% and 72.3% in the following four months, according to Podtrac data. But annual growth decreased to 1.7% in February 2021 and fell into negative territory in March and June, when year-over-year listening sank 16.5%.

At the same time, streaming companies’ acquisitions of podcast companies has made the market increasingly crowded. Spotify, Amazon, Apple, iHeartMedia and Pandora have poured well over $1 billion into podcast companies in the last three years alone.

Taken together, Bernstein argues, these factors suggest a heightened risk-versus-return imbalance is not baked into the current share price.

But the Guardian Fund, a Spotify investor, praised the company in its mid-year report for giving creators tool that will expand podcasting’s reach and advertising potential. “It has become a no-brainer for creators to use Spotify,” the report says. “Moreover, by becoming an open platform Spotify is moving away from the walled garden strategy that Facebook and Apple pursue. In fact, Spotify is doing things that are hard for Apple to copy as its business model is invested in controlling the garden.”

The main question is how podcast listening will grow following the increases during the pandemic. As pandemic restrictions fade and people commute more often, podcasting will compete with increases in in-car listening to radio and music.

The podcasting long tail could explain some of the decline in Podtrac’s data for the top 10 publishers. The number of new podcasts per year grew roughly 650% from 119,000 in 2016 to 885,000 in 2020, according to data from Chartable. That number is certain to grow more as Spotify’s 2019 purchase of the Anchor app gives people a simple tool for podcast creation and publishing on its platform.

Spotify’s market capitalization has grown more than $20 billion since the company announced its exclusive licensing deal for The Joe Rogan Experience in May 2020. That’s all the more reason to expect Spotify’s podcast efforts to generate enough cash flow or become a valuable customer retention tool, Bernstein argues.

Warner Music Group has elected Nancy Dubuc to the company’s board of directors and named her chairperson of the audit committee and a member of the executive committee, effective today.

The company also announced today that Thomas H. Lee will step down from WMG’s board of directors after more than 17 years of service. Lee led the investor group that purchased the company from Time Warner in 2004. In honor of his contributions, he has been awarded the title of director emeritus.

Dubuc currently serves as CEO at VICE Media Group, which she joined in 2018. Prior to that, she was president and CEO at A+E Networks. She also serves on the board of directors of Vice Media and Flutter Entertainment.

“Nancy is an exceptional addition to the board,” said Len Blavatnik, vice chairman of the WMG board and founder and chairman of Access Industries. “Her experience in visual and digital media, combined with her knowledge of youth culture and the entertainment market, make her well suited to help guide WMG’s growth. I would also like to thank Tom for his many years of valuable service on the board, and I’m pleased that we’ll be able to call on his expertise in the future.”

Added Dubuc, “Music now lives in many different forms, across cultures, technologies, and media. Warner’s dynamic, global approach to creativity and commerce, along with the powerful value proposition it offers artists and songwriters, make it a truly progressive and exciting company. I’m looking forward to working with everyone on the board to help chart the years ahead.”

Warner Music Group has “undergone an extraordinary evolution over the past 17 years,” said Lee. “It’s been gratifying to help the company drive its transformation and deliver unprecedented growth. I’m honored that Len and the Board have asked me to continue to serve the company for which I have such admiration.”

Dubuc is just the third woman on WMG’s board of directors; her appointment follows that of Ceci Kurzman, who was appointed last October. Both announcements follow criticism lobbed at the company last year when it was discovered that out of 18 total executives and board members listed in WMG’s initial public offering, zero people of color and just four women were represented.