As a daily Spotify user, I’ve now joined the roughly 30% of Europeans that listen to podcasts.
In February this year Spotify spent €300 million to acquire two podcast networks, Gimlet (based in Stockholm) and Anchor (based in New York). This double deal may not be the end of Spotify’s spending spree, as they plan to spend another €150 million on podcast acquisitions this year.
So why is Spotify, the music streaming service, moving into Podcasts?
My guess is Apple.
Spotify may have Apple beat when it comes to their music streaming service - Spotify has 207 million monthly active users, up 29%, of which 96 million are paid users, up 35% year over year, across 78 markets, whereas Apple music has 56 million paid users, but, 52% of podcast listeners use Apple podcasts, while only 19% use Spotify.
Spotify needs to continue to grow and remain competitive, especially since Apple Music now has more paid users in the United States than Spotify, it’s 28 million verses 26 million.
Spotify has been an innovator and has enabled unknown artists to be heard, followed and recognised without the traditional record label behind them. Even Rolling Stone’s Magazine published an article in September 2018 stating that Spotify gives artists more control and transparency over their work. At the same time, artists receive more royalties as they’re not having to split these with label’s and the traditional middlemen roles associated with record label's.
Their push for better conditions for artists and more affordable access for consumers are two of many reasons I like Spotify as both a consumer and an investor. It was no surprise that Spotify shook up Wall Street with an out of the norm, direct listing for their IPO last April.
If you’re an investor in Spotify or thinking about becoming one, here’s a snapshot by Spotify Founder and CEO, Daniel Ek, on what moving into podcasts will mean for Spotify and Spotify investors.
“Growing podcast listening on Spotify is an important strategy for driving top-of-funnel growth, increased user engagement, lower churn, faster revenue growth, and higher margins. We intend to lean into this strategy in 2019, both to acquire exclusive content and to increase investment in the production of content in-house. The more successful we are, the more we’ll lean into the strategy to accelerate our growth, in which case we would update guidance accordingly.”
This means that Spotify thinks podcasting can help it find new users, keep the ones it has, generate more money, and increase its profit margins, because it’s cheaper to make or license podcasts than songs from big labels and hit artists.
Spotify’s Q4 2018 revenue was $1.7 billion (€1.495 billion), up 30%. The company cut operating costs by 17% in the fourth quarter, resulting in an operating profit of $107 million (€94 million) — Spotify’s first quarterly operating profit.
For 2019, because of the podcast M&A (Merger & Acquisition) strategy, Spotify expects to return to not making an operating profit. It forecast full-year 2019 operating loss of between $228 million-$410 million (€200 million-€360 million) on revenue of $7.23 billion-$7.74 billion (€6.35 billion-€6.8 billion), up 21%.
Apple is a worthy competitor and brand to Spotify. Last year they surpassed US $1 Trillion in market capitalisation (value) and increased their share price by 25.25%, which means investors in the stock market agree that Apple is a worthy investment.
While Spotify’s stock price may be down by 11.64% over the past year, the market may be undervaluing Spotify. Their user numbers and growth are strong, their revenues/profits are growing, and their recent acquisitions could yield them a return as they follow the growth in podcasting popularity globally, especially among younger audiences, to become the world’s leading audio platform.
It could be time to add Spotify to your watchlist.
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