Spotify criticizes ‘bad business’ criticism of podcast earnings forecast

The deal is not as bad as you might think, Spotify executives emphasized Wednesday at the presentation of the company’s first investors after 2018.

While Wall Street has recently deteriorated on the streaming platform due to the high level of investment, company executives said they expected to increase revenue by entering the audiobook business and potentially migrating into education, news and entertainment. Significantly, Spotify’s podcast business, whose executives say total revenue is declining, is expected to have positive margins after 2022.

“Some might also think that we are a bad business, or at least a business with bad leadership for the foreseeable future,” said Daniel Eck, CEO of Spotify. “And others may think that the audio market is not that important.”

“I can say with certainty that this model as a whole works much better than you think,” he said.

To that end, the company has been reporting a vaguely positive performance in its recent earnings reports for months, with the company announcing its first revenue figure for a $1 billion podcast expansion on Wednesday, with Chief Content Officer and advertising, Dawn Ostroff, noting that the podcast is close to $200 million, about $215 million at current conversion rate, in ad revenue. The company expects it to grow “materially” in 2022.

The large investment had a negative impact of €103 million on the 2021 total margin, which could have affected investor sentiment. On Wednesday, CFO Paul Vogel urged investors to continue, saying that while margins will still hit negatively in 2022, he expects the podcast segment to become profitable in the next “one or two years”.

Spotify was published in 2018 via direct listing. Since then, the company, which debuted as a music streaming service, has clearly shown its ambitions to become the best audio company in the world through significant investments in podcasts, live audio and audiobooks. Last quarter, Spotify had 182 million paid subscribers and 2.66 billion euros ($2.82 billion) in revenue, mostly driven by its subscriber business.

The stock price fell as costs increased. Spotify shares are down 5.5% in the last three months and 51.5% last year.

Spotify still sees podcasting as a huge growth opportunity, with Vogel citing it for user and revenue growth. The company currently monetizes just 14% of podcast listening hours worldwide.

In general, users who listen to music and podcasts on the platform have a higher lifetime value, an important metric that Spotify uses for investment, advertising and acquisition decisions.

While Hollywood streaming services like Netflix refuse to slow growth by competing with competitors like Disney+, Spotify executives noted that the company has seen a decline in premium and ad-supported rates, with rates that have dropped to 3.9%. At the end of 2021, it was down from 5.5% in 2017. While the drop was slightly over 6.5% in emerging markets, defined as Asia, Africa and the Middle East, relatively low rates are coming despite recent price increases. subscriber pricing in 13 markets including the US and UK.

“We haven’t seen any material impact on user acceptance or understanding, which gives us a lot of confidence that we have that muscle if we want to use it,” Eka said, defending Spotify’s reluctance to “sacrifice those users’ trust.” “.

In addition to the expected growth in podcasts, Spotify wants to enter the audiobook business, which Eck says he expects healthy margins of over 40% and is “very critical” of the business. Executives say the category is growing 2% a year.

Spotify has signed a deal to acquire Findaway, an audiobook platform, by the end of 2021 and expects the deal to close as one of its biggest moves in the space. Part of this growth includes the expansion of the Findaway Voices platform offering, in which independent authors and publishers are linked to voice actors.

The company is also looking to enter other sectors, but executives have been more vague about those plans, pointing to the development of sports, education and news over the next 10 years. No specific plans were revealed for these potential categories, which were listed as “X, Y, Z” on multiple slides.

“From everything I see, I think in the next decade we will be a $100 billion annual company, with 40% of total margin and 20% of operating margin,” Ekma said.

Spotify’s core music business continues to grow, its main driver current total margin at 28% and projected growth of 30% over the next three to five years. Executives see room for expansion in Asia, Africa and the Middle East, which is at an early stage for the company.

Hope you get another chance at exclusive live audio rooms hosted by artists for your top Spotify fans. This offer is being tested with a select group of artists and has shown “promising” results. The goal is for artists to celebrate new releases and also earn income by selling merchandise or promoting concert tickets.

So far, it looks like Wall Street is buying. Spotify shares rose 7 percent during the four-hour presentation.