Spotify shares surge on CEO Daniel Ek’s optimistic growth outlook

Music streaming platform Spotify Technology SA expects its podcasting unit to become profitable within the next few years and its overall business to generate $100 billion in annual revenue within the next decade.

“I believe our future is much bigger,” Chief Executive Daniel Ek said on Wednesday. Speech at the company’s investor day. That would be massive growth: In 2021, the company had sales of $10.9 billion. Spotify shares SPOT,
up 6% on Wednesday after Ek’s bullish forecast.

Spotify has poured more than $1 billion into bolstering its podcast business, which Ek says has dragged down the company’s gross margin.

But Chief Financial Officer Paul Vogel said the investment will soon pay off, and projects profitability for podcasts over the next year or two and a “meaningful increase” with gross margins for podcasts of 30% to 35% over the next three to three five years. Over the long term, Ek says podcasts could generate gross margins of 40% to 50%.

“This strain won’t last,” Vogel said, according to a FactSet transcript, adding that podcast revenue grew more than 300% in 2021. “We are building a huge podcast audience that is the foundation for monetizing our investments.”

Ek said that Spotify is still growing aggressively, helped by machine learning and technology, and mentioned audiobooks as another massive growth opportunity with annual revenue potential of about $70 billion and margins above 40%.

“From what I’m seeing, I believe that within the next 10 years we’re going to be a company that can generate $100 billion in annual revenue and achieve a gross margin of 40% and an operating margin of 20%,” said Ek.

Spotify shares are down 50% year-to-date, with investors cheering the company as growth slowed unexpectedly. In April, the company announced a drop in subscribers for the first time in a decade, sending shares to their lowest price since the IPO. However, the stock is up 26% versus the SPX of the S&P 500 over the past month.
4.6% gain over this period. Spotify shares surge on CEO Daniel Ek’s optimistic growth outlook

Brian Lowry

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