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Spotify Aims to Reach $100 Billion Annual Revenue in the Next 10 Years, Plans to Experiment With New Content

Spotify hosted its first investor day since going public in 2018.

Spotify Aims to Reach $100 Billion Annual Revenue in the Next 10 Years, Plans to Experiment With New Content

Apart from music, podcasts, and audiobooks, Spotify is also planning to enter new types of content

Highlights
  • Shares of the company rose 6.5 percent on Wednesday
  • Spotify hosted its first investor day since going public in 2018
  • Spotify is still in investment mode

Spotify on Wednesday said it expects to reach $100 billion (roughly Rs. 7,780 crore) revenue annually in the next 10 years and promised high-margin returns from its costly expansion into podcasts and audiobooks.

The audio streaming company hosted its first investor day since going public in 2018, hoping to stoke Wall Street's enthusiasm despite the slowing global economy.

To reach its ambitious goal, Spotify would need to make its revenue grow nearly 10-fold from 2021 revenue of $11.4 billion (roughly Rs. 88,660 crore), and Chief Executive Daniel Ek also forecast gross margins to jump to 40 percent and operating margin to 20 percent in the same time.

"Spotify will put out these pretty audacious targets and we are going after these because that's how we see the world and we are going to invest behind that," Ek said.

Shares of the company rose 6.5 percent on Wednesday after losing 53 percent of its market value so far in 2022, worse than the 24 percent drop in the S&P 500 communication services sector index, which includes Spotify and other media and social network companies.

Ek began the nearly four-hour investor presentation trying to reset Wall Street's perceptions of the company, saying some may think "we're a bad business or at least a business with bad margins for the foreseeable future."

One of the reasons for not reaching its long-term goals was its aggressive spending to build up its podcast and audiobooks platforms. Though Ek said its investments are already performing "better than you probably expect," with gross margins of 28.5 percent, well on its way to reaching the company's 30 percent-35 percent long-term goal.

Spotify's chief content officer, Dawn Ostroff, said the company has committed more than $1 billion (roughly Rs. 7,780 crore) to podcasting, and expects podcast revenue to increase materially this year from the $215 million (roughly Rs. 1,670 crore) it made last year. She said the company was still in investment mode, but it believes podcasting to be a $20 billion (roughly Rs. 1,55,580 crore) opportunity.

Ek expects the podcast business to have the potential to generate margins between 40 percent to 50 percent and audiobooks to also have margins over 40 percent. He did not specify how long it would take for the company to hit those numbers.

Apart from music, podcasts, and audiobooks, Spotify is also planning to enter new types of content over the next 10 years that would boost its average revenue per user, engineering manager Alexander Nordstrom said. He said Spotify was on track to hit its goal of 1 billion users by 2030.

While it has so far been a rough start to the year for streaming companies like Spotify and Netflix, the Swedish company also faced a controversy over moderating of its popular Joe Rogan podcasts.

The service though continued to add users and paying subscribers in the first quarter, reporting monthly users of 422 million, ahead of the consensus estimate.

© Thomson Reuters 2022


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