Music To Your Ears
Updated October, 2024
Market/Symbol
NYSE:SPOT
Price
$477.52.17%
Market Cap
$96b
PE Ratio
199.38
Average Volume
2m
Pricing delayed 2 hours. Nov 21, 2024 9:00 AM
Investment Thesis
The Worlds Leading Music Streaming Platform
Spotify is now a household name around the globe and the undisputed leader in music streaming boasting 239 million subscribers versus Apple Music with 110 million and Amazon Music with 82 million. Spotify is available in 184 countries exposing them to to global growth in smartphone usage. We are in the early innings of Spotify's journey and profits are expected to ramping rapidly over the next 5 years due to operating leverage and higher margin podcast and audiobook projects.
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SPOT is currently building out an ecosystem for creators through a number of acquisitions over the last 5 years to continue attracting more talent to the platform. Acquisitions:
Anchor (2019) - This is a podcast operating system that powers 50% of industry podcasts and 80% of the content on Spotify.
Megaphone (2020) - An ad-insertion tool and marketing platform allowing podcast hosts to monetise their shows and sell space to advertisers.
Podz (2021) - Creates listener profiles and uses massive amounts of data and AI to find new content for you based on your listening, powering your 'Discover Weekly' within podcasts.
Reliance on Content from Third Parties:
Spotify relies heavily on content from music labels, podcast creators, and audiobook publishers. Any breakdown in these relationships could hurt its ability to offer competitive content. For instance, if major labels were to demand significantly higher royalties or remove their catalogues, Spotify’s content offerings would suffer, affecting user retention and acquisition.
Intense Competition:
The music streaming space is highly competitive, with Spotify facing strong rivals such as Apple Music, Amazon Music, and YouTube Music. Many of these competitors are part of larger tech ecosystems that offer streaming as part of broader product and service bundles, giving them potential cost advantages. Apple and Amazon, for instance, have substantial financial resources to subsidize their music streaming services or offer integrated services that can lure users away from Spotify.
User Growth Saturation in Key Markets:
Spotify is seeing user growth slow in its more mature markets like North America and Europe, where it already has a strong foothold. Future growth depends on penetrating less mature markets, where revenue per user might be lower. Additionally, its user growth model relies heavily on attracting new users in regions with lower disposable income, making it more challenging to monetize its services at the same level.
Spotify pays around 65-70% to music rights holders, which include record labels, music publishers, and performing rights organizations (PROs). The revenue distribution can vary slightly depending on the specific agreements with different labels and publishers.
A large majority (usually over 50%) goes to the record labels that own the rights to the music recordings.
The revenue an artist earns from Spotify is usually based on their individual contract with the label, which can be anywhere from 15-50% of what the label receives.
In addition to paying the record labels, Spotify also pays 10-15% of its revenue to music publishers and songwriters for the rights to the underlying composition of the music (separate from the recording).
Royalty payments are multilayered and complex, it is important to remember that Spotify does not own the music, they are simply a distributor, and the music is owned by the artists and their respective labels and publishers.
Spotify is positioning advertising as a key growth driver, particularly through its Streaming Ad Insertion (SAI) technology and Spotify Audience Network. Long-term, Spotify is aiming to grow ad revenue to €10 billion annually, bolstered by podcast ads, interactive ad formats, and expanding into new markets
Spotify has made audiobooks a central feature of its premium tier, offering users access to a large library of audiobooks as part of their subscription. This approach is similar to how it incorporates podcasts and music, creating a one-stop platform for multiple types of audio content. Spotify entered the audiobook space by acquiring Findaway, a leading audiobook distribution platform, in 2021. This acquisition gave Spotify the infrastructure to offer a broad audiobook catalogue and build its platform. Management sees audiobooks as a significant revenue driver, particularly as it expands beyond music streaming. While audiobooks are currently bundled into the premium subscription tier, Spotify is exploring additional ways to monetize this content, potentially through ad-supported models or standalone purchases. Over time, audiobooks could help increase the average revenue per user (ARPU) and reduce the platform’s dependence on music.
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Team
Daniel Ek
CEO
Daniel Ek is the co-founder and CEO of Spotify. He launched the company in 2006, revolutionizing music streaming and transforming Spotify into the largest audio platform globally, with over 600 million users. Ek is known for his visionary leadership, pushing Spotify into new content categories like podcasts and audiobooks. Before Spotify, he founded Advertigo and was the CTO of Stardoll.
Christian Luiga
CFO
Christian Luiga serves as Spotify’s CFO. He joined in 2024, bringing over 25 years of financial expertise, previously holding leadership roles at Telia Company, a major telecommunications firm. Luiga is instrumental in driving Spotify’s financial strategy, focusing on profitability, operational efficiency, and long-term growth initiatives.
Alex Norström
Chief Business Officer
Alex Norström is Spotify’s Chief Business Officer, responsible for overseeing the company’s growth strategy, particularly in premium subscriptions. He has played a pivotal role in expanding Spotify’s global footprint and user base, driving its revenue streams through innovative pricing models and subscription features.
Gustav Söderström
Chief Technology Officer
Gustav Söderström is Spotify’s Chief Product & Technology Officer, leading product development, engineering, and user experience. He has spearheaded Spotify’s advancements in AI and personalization, such as the Discover Weekly feature, and is integral to expanding its offerings into podcasts and audiobooks.
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