Since Spotify went public in 2018, the music streamer has increased its subscribers, active users and revenue. But questions about its profitability prospects are often seen as an economy of its stocks. CEO daniel ek Recognized on June 8 during its First Investor Day. Some might think, “We’re a bad business, or even a bad-margin business for the foreseeable future,” Ekma said, calling the entire line between key performance indicators “lonely traits” that would otherwise be profitable since 2018.
Gross margin is a measure of profitability, expressed as a percentage, calculated by subtracting the value of goods or services sold from the revenue they generate, divided by that revenue, multiplied by 100. In Spotify’s traditional music business, cost includes royalties to record labels and artists. (The audio giant paid $7 billion in royalties last year, up from $5 billion in 2020.) “Spotify may not be a good deal. And the second is that we are investing in the strength of our business to make it bigger, stronger and more resilient.”
In a new disclosure, Eki argued that it was the latter, sharing that the company’s traditional music business “does a lot better than you think” with a total margin of around 28.5%, more than the company’s margin. , and “significant progress”. ” Achieve our long-term goal of 30 to 35 percent. (Among competitors, Apple achieved its overall margin of 43.8% in the last quarter of 2021.)
Spotify usually distributes pointers about a company that includes highly invested businesses. “What’s holding us back is our transition to podcasting,” Eka explained of her total margin, promising that the loss would peak this year, helping to shift the narrative. After all, podcasting is “not yet profitable” but has 40% to 50% of the total long-term margin potential, he said.
This is in part because Spotify has been buying up space in recent years, including acquiring podcast creators like The Ringer, Gimlet Media and Parcast. Spotify announced on Investor Day that it has spent $1 billion on space expansion, which it expects to turn into a $20 billion business for the company. Commercial Director of Content and Advertising dawn ostrophy He said podcasting generated about $215 million in ad revenue in 2021, with a forecast to increase in 2022.
Many on Wall Street took the new view as a positive sign. “In the four years since its listing, Spotify has doubled its revenue and monthly active users, but its overall margin has remained flat. We believe Spotify is the single most important factor in the drop in stock prices,” said Evercore ISI analyst. brand mahan He wrote in the report, adding that the company has taken steps to address investor concerns. “We believe the company has made significant progress in terms of investor concerns about its ability to expand profitability, exposing its core music margin through greater disclosure, podcast profitability progress and margin drivers. term for future vertical expansion. Sports, News and Education.
Mahaney said he was “increasingly confident in Spotify’s ability to deliver full margin expansion over the next year” based on key disclosures, including management’s commitment that “2022 will be the peak of total podcast backlogs.” $235.)
“In just three years, we’ve not only become a leading platform for creators and listeners, we’ve also expanded the podcasting format itself,” said Eki. “All these investments have led to greater customer engagement and retention and greater engagement, with total hours of consumption reaching an all-time high quarter-on-quarter.
american bank analyst Jessica Reif-Ehrlich Likewise, the report argued that “total margin is expected to expand as podcasting approaches value over the next one to two years.” It raised revenue and gross margin forecasts for 2025, the latter from 27.9% to 29.2%. “We view Spotify’s total margin trajectory as a major controversy among investors,” Raif Ehrlich explained in his “buy” rating and target price of $164, compared to the company’s recent price of around $164. 112. main driver to improve future margins.”
Morgan Stanley benjamin swinburneThose with an “overweight” rating and a $170 price target for the stock are also bullish on Investor Day, saying executives would paint “a picture of a business that was more successful than was apparent in the past”. recent years. .”
Source: Income statements of companies.
The story first appeared in the June 15 issue of The Gossipify. Click here to subscribe.
Source: Hollywood Reporter
Camila Luna is a writer at Gossipify, where she covers the latest movies and television series. With a passion for all things entertainment, Camila brings her unique perspective to her writing and offers readers an inside look at the industry. Camila is a graduate from the University of California, Los Angeles (UCLA) with a degree in English and is also a avid movie watcher.
