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Spotify Soars on Podcast Acquisitions

Posted on Thursday, May 28th 2020

According to the Interactive Advertising Bureau, the global podcast industry is estimated to grow from $479.1 million in 2018 to over $1 billion by 2021. Online music streaming service Spotify (NYSE: SPOT) is already cashing in on this growth.

Spotify’s Financials

For the recently reported first quarter, Spotify’s revenues grew 22% to €1.848 billion (~$2 billion), ahead of the market’s forecast of $1.86 billion. Monthly active users grew 31% to 286 million with premium paid subscribers at 130 million and ad-supported monthly active users at 163 million. This was the third consecutive quarter when Spotify delivered more than 30% subscriber growth rates. Adjusted loss per share came in at $0.22 which was also better than the market’s estimated loss of $0.42.

By segment, revenues from Premium subscribers grew 23% to €1.7 billion (~$1.8 billion) and advertising revenues grew 17% to €148 million (~$0.2 million). The slowdown in advertising revenues due to the global economic conditions were outpaced by the increase in paid subscriber base for the quarter.

The current lockdown conditions have helped Spotify grow its subscriber base. But the company is wary of the surprises that the coming quarters may deliver. It did, however, issue a guidance for the quarter and the remainder of the year. For the second quarter, Spotify projected 289-299 million total monthly active users with Premium subscribers at 133-138 million. It projected revenues of $1.9-$2.1 billion and an operating loss of $49-$103 million. It expects to end the current year with revenues of $8.29-$8.73 billion. The market was looking for revenues of $2.19 billion for Q2 with a net loss of $0.25 per share and revenues of $8.88 billion for the year with a net loss of $1.27 per share.

Spotify’s Content Growth

Spotify continues to expand its content line-up of music and Podcasts. It noted that 19% of its total MAUs currently listen to podcast content, compared with 16% in the previous year. For the recently ended quarter, Spotify launched 78 Originals & Exclusives podcasts globally. Podcasts launched during the quarter include titles like Le Nuage, a fact-based thriller that was the leading podcast in France the week it was released.

Spotify now has over 1 million podcasts available on its platform. It is seeing a minor slowdown in the supply of podcast content due to the virus. But its studios are continuing to roll out original content. Last quarter, it was able to release Fest & Flauschig, one of its biggest podcast in Germany while its production team worked from home.

Earlier this year, Spotify announced the acquisition of The Ringer. Bill Simmons’s blogsite The Ringer focuses on sports and entertainment blogging. Prior to setting up The Ringer, Simmons had worked at ESPN and delivered podcasts that gathered 10.7 million downloads within a year. The Ringer claims to have generated $15 million in podcast ad sales in 2018. Spotify did not disclose the acquisition price, but analysts peg the deal at $250 million. Post the acquisition, Spotify now has four studio operations globally – Gimlet, Parcast, The Ringer, and Spotify Studios.

But the biggest news for Spotify podcast was its recent announcement about securing rights to Joe Ragan’s podcast – The Joe Rogan Experience. Joe Rogan is a former comedian, mixed martial arts commentator, and host of Fear Factor. He is also the best-known podcaster reaching over 190 million downloads per month. The acquisition of the content cost Spotify an estimated $100 million. In return, Spotify gets exclusive access to his content which will help it expand its advertising revenue. Analysts believe that Joe Rogan attracts the coveted younger demographic that advertisers are looking to lure.

Its stock is currently trading at $185.95 with a market capitalization of $34.58 billion. It touched a 52-week high of $196.75 earlier this month after it got bragging rights to the Joe Ragan podcasts. The stock had fallen to a 52-week low of $109.18 in September last year. At the time of listing, nearly two years ago, the reference price for the stock was determined at $132, valuing it at $26.5 billion.

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