Spotify gains 6% as Investor Day points toward investment in podcasts, audiobooks
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Spotify (NYSE:SPOT) is among the top Communications stock gainers Wednesday morning, up 5.6% as it hosts its second Investor Day with presentations on innovation and growth plans.
In the event (still ongoing), CEO Daniel Ek says that since going public via direct listing in 2018, the company's weathered challenges but "weâve also morphed pretty dramatically as a business and Iâm not sure that journey is fully understood. And frankly, we probably havenât done a very good job of explaining it."
Users probably think of Spotify as a great product but also "that we're a bad business or at least a business with bad margins for the foreseeable future," and that the audio market is limited - and he's working to address those assumptions, Ek said.
The company had previously set out three core foundations - Ubiquity, Personalization and Freemium - and when it comes to Ubiquity, Spotify has gone from about 250 partners in 2018 to more than 2,000, including areas such as wearables, cars and kitchen appliances, Ek said.
Some 28% of new registrations come from those partners, up from 14% in 2018. And those using Spotify on more than one device (89% of Premium subs now, up from 75% before) are some of the most engaged users. Monthly subscriber churn has dropped by nearly 30% over the past four years, he said.
Asked what they most admire about Spotify, more than 81% of listeners cite personalization - a service that "just gets them."
And the Freemium push "enabled Spotify to build a successful flywheel with our free tier serving as a direct funnel to help us establish a large and growing subscriber base," Ek said, helping propel expansion into new markets.
As for last quarter's first-of-its-kind payment deal with Google, Ek can't detail terms but "I can say they are beneficial to Spotify and overall, thereâs no question that that will lead to new subscriber growth opportunities on Android devices around the world."
How has all that translated into financial goals? Spotify has delivered compound annual growth of 26% for monthly active users, for subscribers and for currency-adjusted revenue, Ek said.
"The lone outlier â thatâs gross margin," Ek says. "So thereâs two possible explanations for this lower gross margin result. One might be that Spotify simply isnât that good a business. And the other is that we are investing behind the strength of our business to make the business bigger, stronger and more resilient."
Investing has made Spotify the world's biggest audio streaming platform; "but the prize we are going after is actually much greater and as a consequence, the total addressable market is gigantic," Ek said, alluding to multiple verticals beyond music. The podcast vertical is still in investment mode and not yet profitable, but "we believe it has 40-50% gross margin potential."
Meanwhile, the agreement to acquire Findaway at the end of 2021 is jumpstarting a promising launch in audiobooks: "Call that an annual opportunity of $70 billion for us to expand and eventually compete for. And just as we've done in podcasting, expect us to play to win," Ek said, a shot across the bow of Amazon.com (AMZN).