1. Executive Summary

Genmab is a biotech company specializing in antibody therapeutics to treat cancer with a royalty-driven, asset-light business model. It is a top-two leader in the sector with Regeneron but has a stronger risk-reward profile by partnering with big pharma to develop drugs. Its economic moat lies in its four antibody platforms to develop patented drugs like Darzalex and EPKINLY, along with strong financials to conduct strategic M&A to acquire proprietary antibody platforms and patented drugs. Overall, Genmab is an antibody therapeutics leader with high-quality earnings from recurring blockbuster drug royalties with high margins.

2. Company Overview

   1. Business segments

   2. Revenue drivers

      Genmab is a biotechnology company specializing in the discovery, development and commercialization of antibody therapeutics to treat cancer and other serious diseases

      Royalties: 80.6% (from partner drug sales: Darzalex (J&J), Kesimpta (Novartis), Tepezza (Horizon).

      Product sales: 10.1% (from Genmab’s own drugs: EPKINLY)

      Milestone revenue: 9.3% (one-time payments for R&D/regulatory/commercial achievements).

   3. Cost drivers

      COGS: 4.6% (relatively low given the royalty-heavy business model)

      SG&A: 17.6% (covers commercial activities, corporate overheads, and administrative functions)

      R&D: 44.9% (largest cost driver for discovery and clinical development of antibody therapeutics)

   4. ESG considerations

      Genmab passes negative ESG screening and qualifies under positive ESG screening as the development of antibody therapeutics for cancer and other serious diseases delivers high social benefits

3. Competitor Analysis

   a. Economic moat

   Strong defensible moat with proprietary antibody platforms and patented drugs:

   Genmab’s four antibody platforms (DuoBody, HexaBody, HexElect, and DuoHexaBody) to design new antibody drugs quickly and precisely, proven with patented drugs like Darzalex, Kesimpta, EPKINLY etc.

   Top-two leaders in antibody therapeutics for cancers with Regeneron. However, Regeneron develops antibody drugs fully in-house with its VelociSuite antibody platform aiming for higher revenue potential. Genmab’s partnership model gives a stronger risk-reward profile by leveraging big pharma partner resources for reduced upfront costs and higher margins.

   Strategic M&A to acquire proprietary antibody platforms and patented drugs (e.g. ProfoundBio, Merus)

4. Investment Thesis

• Antibody therapeutics leader with globally approved products and big pharma partnerships

• High-quality earnings from recurring blockbuster drug royalties with high margins

• Strong defensible moat built on antibody platforms with proven ability to produce patented drugs

• Strong financials for strategic acquisitions of antibody platforms and patented drugs

5. Valuation

• Given that the market values Genmab and Regeneron at the same EV/Revenue ratio of 4.2x, I will use it as the valuation basis for Genmab

• Consensus estimate of Genmab’s annual revenue growth rate from 2025 is c.15%

• 3Y 2028 Revenue and 5Y 2030 Revenue are 5746.8mm and 7600.2mm

• 3Y EV and 5Y EV are 24,136.56mm and 31,920.84mm

• After adjusting for net debt, this gives a 3Y target of 44.49 (42.1% upside) and a 5Y target of 57.13 (82.5% upside)

• Additional Catalysts for Event-Driven Upside

  • Rina-S (ProfoundBio): FDA Breakthrough Therapy Designation granted in August 2025 for endometrial cancer, signalling an accelerated regulatory pathway and supporting potential biologics license application submission and approval by 2027.

  • Petosemtamab (Merus): Interim Phase 3 trial results expected in 2026, with potential initial launch in 2027 and >USD 1bn annual peak sales potential by 2029 in head and neck cancer.

  • Bolt-on Acquisitions: Management continues to pursue strategic acquisitions, supported by a strong balance sheet and free cash flow, to enhance the pipeline with near-commercial assets and proprietary antibody technologies.

6. Risks and Mitigation

• Patent expiries: Reduced earnings once patents expire and biosimilars enter the market, especially for blockbuster drugs like DARZALEX by 2030

• Pipeline execution: Future growth is subject to clinical trials with uncertain outcomes

• Mitigation: Strong expanding portfolio through Genmab’s proprietary antibody platforms to develop pipeline drugs and strategic M&A to acquire developed drugs and technologies

7. ESG Assessment

• Environmental (E): Limited direct environmental footprint due to an asset-light, R&D-focused business model

• Social (S): Strong social impact through the development of life-saving cancer and autoimmune therapies

• Governance (G): Robust governance supported by strong intellectual property protection and long-term strategic partnerships

8. Conclusion

I recommend a BUY for Genmab with a 3Y upside of 42.1% and a 5Y upside of 82.5%, CAGR c.12%

Company Overview

Spotify is the world’s most popular audio streaming subscription service with a community of 675 million monthly active users (MAUs) and 263 million Premium Subscribers across 184 countries and territories as of December 31, 2024.

Spotify has transformed the way people access and enjoy music, podcasts, and audiobooks. Today, millions of people around the world have access to over 100 million music tracks and 6.5 million podcast titles through Spotify whenever and wherever they want. In select markets, over 350,000 audiobooks are available for à la carte purchase and eligible Premium Subscribers receive a specified number of hours of access a month to a subscriber catalogue containing more than 200,000 audiobooks.

Business segments

Spotify offers both Premium and Ad-Supported Services to its customers. Spotify’s Premium and Ad-Supported Services live independently but thrive together. The Ad-Supported Service serves as a funnel, driving a significant portion of Spotify’s total gross added Premium Subscribers, while being a strong stand-alone product with considerable long-term opportunity for growth as well.

Spotify’s Premium Service provides users with unlimited online and offline high-quality streaming access to Spotify’s catalogue of music and podcasts and limited audiobooks, without commercial breaks. Spotify generates revenue for its Premium segment through the sale of subscriptions to the Subscription Offerings.

Spotify’s Ad-Supported service has no subscription fees and generally provides Ad-Supported Users with limited on-demand online access to Spotify’s catalogue of music and unlimited online access to Spotify’s catalogue of podcasts. Spotify generates revenue for its Ad-Supported segment primarily from the sale of display, audio, and video advertising delivered through advertising impressions.

Revenue drivers

Spotify’s revenue is split between Premium (~87%) and Ad-Supported (~13%).

Premium:

Revenue from the Premium segment is a function of the price of Spotify’s Subscription Offerings and the number of subscribers who subscribe to Spotify's Subscription Offerings. As of December 31, 2024 and 2023, Spotify had 263 million and 236 million Premium MAUs with annual ARPUs of ~USD 54.4 and ~USD 54.2 respectively.

Ad-Supported:

Revenue from the Ad-Supported segment is dependent primarily on the number and hours of engagement of Ad-Supported Users and podcast listeners and is generally recognized based on the number of impressions delivered. As of December 31, 2024 and 2023, Spotify had 425 million and 379 million Ad-Supported MAUs with annual ARPUs of ~USD 4.5 and ~USD 4.9 respectively.

Cost drivers

Cost of revenue:

Cost of revenue consists predominantly of royalty and distribution costs related to content streaming. Cost of revenue also includes cost of podcast content assets (both produced and licensed). Cost of revenue also includes credit card and payment processing fees for subscription revenue, advertising serving, advertising measurement, customer service, certain employee compensation and benefits, cloud computing, streaming, facility, and equipment costs. Cost of revenue was 70% and 74% of Spotify's total revenue in 2024 and 2023 respectively.

Research and development:

Spotify invests heavily in research and development in order to drive user engagement and customer satisfaction on its platform, to drive organic growth in MAUs, which, in turn, drives additional growth in, and better retention of, Premium Subscribers, as well as increased advertising opportunities to users. Research and development expenses were 9% and 13% of Spotify's total revenue in 2024 and 2023 respectively.

Competition

Spotify is the market leader in music streaming, having 32% of worldwide market share, followed by Tencent Music at 15%, Apple Music at 12% and Amazon Music and YouTube Music both at 10% and Others at 21%.

Tencent Music focuses on the Chinese market where Spotify does not operate in, while Apple Music focuses on Apple device compatibility whereas Spotify works for all devices. Hence both Tencent Music and Apple Music have limited total addressable market (TAM) compared to Spotify in the long term.

Amazon Music and YouTube Music are packaged with Prime membership and YouTube Premium respectively. While this has allowed the two companies to quickly grow their music streaming market share, they are plagued with issues of poor user interface, audio streaming quality and lack of features that Spotify offers.

Investment thesis

Spotify’s first mover market leadership, competitive moat with AI personalisation and profit inflection point:

Since Spotify’s founding in 2006, it has transformed the music industry by allowing users to move from a “transaction-based” experience of buying and owning music to an “access-based” model, which allows users to stream music on demand. Since then, Spotify has grown rapidly to become the market leader in the music streaming industry.

While Spotify faces fierce competition today, it has key advantages over Tencent Music and Apple Music with their limited TAMs, as well as Amazon Music and YouTube Music with their poor user experience. Spotify has also invested heavily in R&D and has continuously innovated to enhance user experience and have a competitive moat.

In terms of music, Spotify is widely reviewed to have the best personalized playlists with Daily Mix, Discover Weekly and Spotify AI DJ. Spotify also includes social aspects of Friend Activity, Collaborative Playlists, Group Sessions and Spotify Wrapped. Outside of music, Spotify also dominates audio podcast consumption with ~6.5 million titles and has a strong library of ~350k audiobooks.

According to research firm Antenna, Spotify listeners are the least likely to cancel among the major video or audio streaming services in the US. Fewer than 1.5% of Spotify users did so during the month of April 2024, and the company’s monthly churn rate has hovered around 2% all year. This is because audio services are stable given that people will sign up for and cancel a video service based on what is available, compared to audio service with more similar content. As a result, customers switch between audio services about one-fourth as often as they switch between video services.

This could be seen as a negative given that audio services are undifferentiated and there is fear that if Spotify costs more than Apple Music, Amazon or YouTube, people will just switch. But this has already proven to be false in 2023 and 2024 where Spotify raised prices and Premium MAUs still increased by 15% and 11% respectively. This shows that audio services are stickier than it would appear. Users have dozens or hundreds of playlists within their preferred service, coupled with good user experience, creates very real switching costs.

The market still does not widely acknowledge that network-defined, scaled economy increasingly precedes profit. Spotify has been compounding scale and customer goodwill for nearly two decades now, which has put the company in a good position to proliferate free cash flow. So long as Spotify remains focused on lifetime value, recent leaps in free cash flow merely mark the beginning of their journey in offering immense shareholder value. Spotify finally reaching their profit inflection point with its first full year of profitability in 2024 cements my belief of this.

Valuation

I will use P/FCF to value Spotify given its strong position to generate FCF moving forward after nearly two decades of building up a large loyal customer base. As of 15th July 2025, Spotify is trading at P/FCF of 117.5x.

While this may appear elevated on an absolute basis, it reflects investor confidence in Spotify’s ability to significantly scale its free cash flow in coming years, driven by:

• High operating leverage as content costs and R&D stabilize along with expansion of higher-margin revenue streams of podcast and audiobooks

• Ongoing subscription price increases in mature markets without meaningful churn

• Accelerated growth in MAUs particularly in under-penetrated emerging regions

Spotify’s FCF CAGR is 217.25% TTM, 115.05% over the past 3 years, and 60.48% over the past 5 years.

I estimate Spotify’s FCF to grow at a conservative CAGR of 30% for the next 3 years, and 25% for the next 5 years.

This would bring Spotify’s FCF from USD 3.045B today to ~USD 5.32B in 3 years and ~USD 7.44B in 5 years.

Using conservative P/FCF ratios of 35x (3Y) and 30x (5Y) — in line with TMT industry and well below today’s multiple of 117.5x — I derive a 3Y price target of USD 186.2B market cap and a 5Y target of USD 223.2B.

With Spotify’s current market cap at USD 147.1B, this implies 3Y and 5Y upside potential of ~27% and ~52% respectively.

Risk

The key risk that Spotify faces would be the fact that it has no control over third-party providers of the content it streams. The music industry has high level of concentration, which means that entities may take actions that adversely affect Spotify's business. For example, with respect to sound recordings, the music licensed to Spotify under their agreements with Universal Music Group, Sony Music Entertainment, Warner Music Group, and Music and Entertainment Rights Licensing Independent Network, makes up the majority of music consumed on Spotify at ~71% of streams. Spotify’s business may be adversely affected if its access to music is limited, delayed or even cut off.

But looking at the flip side, this is a symbiotic relationship as these music companies also need Spotify, the market leader of global music streaming, to distribute their music. Streaming has become a significant recurring revenue of recorded music and Spotify is a big contributor.

Ultimately, labels need Spotify and Spotify needs labels. This co-dependency means neither side can act unilaterally without hurting themselves which stabilises the relationship.

ESG assessment

I do not foresee any significant ESG risks that will negatively impact Spotify’s performance. Spotify’s nature of operations makes its environmental impact minimal, and its social and governance impacts are duly managed as well, with Equity & Impact Reports being published annually.

Conclusion

I present a “BUY” recommendation based on Spotify’s first mover market leadership, competitive moat with AI personalisation and profit inflection point.