OPINION: What To Make Of Spotify?

Spotify is one of the most confounding media companies in the world, according to Chris Walton, managing director of Nunn Media’s Sydney office. On the one hand, it’s losing cash, on the other, it’s making more money from advertising than ever before. It doesn’t help that the press can’t seem to make heads or tails of Spotify, either.

Is there a media company out there that divides opinion more than Spotify?

A few months ago I conducted a poll on LinkedIn asking people what they thought about Spotify’s future – good, bad or ugly?

Chris Walton, managing director – Sydney, Nunn Media

It was revealing that 50 per cent of people who responded said they didn’t know. Based on a rather amusingly small sample size of 44, I’ll be the first to admit that I wasn’t going to use this as a basis for anything other than something to ponder while I made a coffee.

But was I on to something? Following its most recent earnings report on Tuesday, it appears there is no clear view on what the future holds for the company, as evidenced by the headlines covering the announcement:

“Spotify swings to loss as it adds 200,000 audiobooks to paid service”

“Spotify Stock Unwinds Big Post-Earnings Gain as Traders Turn Down the Volume”

“Spotify is starting to lose less money”

“Spotify Losses Narrow As User Growth Tops Forecasts In Strong Q4”

and in this esteemed title… “Spotify’s Ad-Supported Revenue At ‘All-Time High’”

Is it going well? Or not? Will the business survive and thrive or wilt away? This question has divided the investment community for years.

Well, I’ve decided to jump off the ‘No Friggin Idea’ fence and make the case that the future looks bright for them. I’m being unashamedly positive, using at least a month’s worth of exclamation marks and at least a year’s supply of terrible puns hoping to smoke out alternative views so that at the very least I understand it more.

Spotify delivered a surprisingly sunny earnings report for Q4 2023, proving that the audio giant is singing a new tune (bang!). Shedding the weight of past financial woes, Spotify revealed it lost less money than expected, leaving investors to do a happy dance as the company share price continues to head, albeit slowly, towards pre-pandemic highs.

After years of financial fumbles, Spotify now claims it’s on the right track (bang!) to meet investor expectations. The third quarter saw the company post its first quarterly operating profit since 2021, and the Q4 report? Well, it’s a chart-topper (bang!), doubling the operating profit compared to Q3 (minus those pesky one-time restructuring charges from December’s staff shake-up).

But it’s not just about the money — it’s about the listeners. Spotify’s monthly active user count soared by 28 million in Q4, surpassing 600 million, while premium subscribers rolled in at 236 million, growing by a whopping 31 million. Both numbers were ahead of Spotify’s Wall Street guidance, beating most analysts’ expectations.

The financial resurgence continued with a 16 per cent year-on-year revenue growth, hitting €3.7 billion ($AU6.14 billion). Spotify’s adjusted operating profit, after dodging €143 million ($AU237 million) in one-time charges, boomeranged to €68 million ($AU112 million). Gross profit margins danced their way (bang!) up to 26.7 per cent, a smidge ahead of expectations.

As Spotify shifts gears from podcast distribution to owning rights, it’s focused on scoring deals that aren’t as much of a financial anchor as they were in the past. A re-shaped multiyear distribution deal for The Joe Rogan Experience, is just one example.

But the innovation doesn’t stop there. Spotify added audiobooks to its playlist in the U.S., boasting over 200,000 titles for premium subscribers. With this upbeat tune (bang!), Spotify’s groove is back (bang!), and as they aim for gross profit margins in the future between 30-35 per cent, it looks like the audio giant is now playing a track that investors want to listen to (bang!). More so given we are at the start of a year during which macro-economic conditions should improve.

What do you think? Am I way off the mark? Have I been drinking too much of the Spotify Kool-Aid? What is the argument against its future success? I’d be keen to hear.

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