Spotify (SPOT) shares plunged on Friday after the company was hit by a downgrade at Citi, while reports surfaced that Apple (AAPL) may be set to challenge the company with its own podcast subscription service.

NO BENEFIT SEEN ON PODCAST INVESTMENTS: Citi analyst Jason Bazinet downgraded Spotify to Sell from Neutral with a $310 price target. Among the four subscription based stocks - Spotify, Roku (ROKU), Netflix (NFLX) and SiriusXM (SIRI) - Spotify is the only company where the Street's long-terms forecasts "do not comport to the prevailing valuation," Bazinet told investors in a research note this morning. The analyst suspects "this disconnect stems from recent enthusiasm around Spotify's recent podcast pivot." However, the cadence of Premium gross additions through 3Q20 and app download data through 4Q20 do not show any material benefit from podcast investments that began in 2019, the analyst wrote.

To date, Bazinet said he has not seen a material positive inflection in app downloads or Premium subscriptions, but that "if we were to see a material positive inflection in app downloads or Premium subs [from higher gross adds or materially lower churn], we would alter our view."

WHAT'S NOTABLE: Spotify began its foray into podcasting in 2019 and acquired Gimlet Media, Anchor and Parcast to enhance its operations. The company has since acquired The Ringer, as well as Megaphone, and has gained exclusive rights to stream celebrity podcasts, including those from former First Lady Michelle Obama, The Duke and Duchess of Sussex, and comedian Joe Rogan.

APPLE TO CHALLENGE SPOTIFY: Meanwhile, The Information's Tom Dotan and Jessica Toonkel reported on Friday that Apple is considering a new subscription service to charge people to listen to podcasts. According to people familiar with the matter, a service from Apple, which already has the most widely used podcasting app in the industry, could pose a threat to Spotify and others.

It is unclear when Apple could launch such a service, but the report notes that Apple would be likely to add the podcasting service to its current bundle that includes a video-streaming service, a gaming service and a fitness subscription or its existing media bundle, which offers access to music, television and gaming services.

PRICE ACTION: In afternoon trading, shares of Spotify are down over 6% to $320.35.