Spotify logo (credit: google)
- Long-term margins for streaming services range from 40% to 50%.
- In an investor presentation, officials discuss the outlook for podcasts.
Spotify Technology SA anticipates that its podcast operation, a pricey bet that has caused investor criticism, would become profitable within the next one to two years.
“This drag will not last,” Chief Financial Officer Paul Vogel said during an investor presentation on Wednesday. He was accompanied by Spotify CEO Daniel Ek and other executives.
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Spending on podcasts has been a cause of concern for Spotify investors, as the company spent more than $1 billion to become the market leader in that category. When Spotify announced that costs for nonmusic content were hurting profitability in April, the price plummeted.
The margin pressure will ease after 2022, officials stated during the presentation. Spotify expects podcasts to generate gross margins of 30% to 35% over the next three to five years, according to Vogel. Longer-term, the company estimates margins of 40 percent to 50 percent, a 10% rise from previous projections.
Daniel Ek is building a monsterous machine over next decade @eldsjal @Spotify
$100 billion of revenues
40% gross margins
20% operating margins #SpotifyInvestorDay $SPOT pic.twitter.com/pdgYhrnw74— Rich Greenfield, LightShed (@RichLightShed) June 8, 2022
During the presentation, Spotify shares rose over 9% before reversing some of the gains. After reaching historic lows in May, the stock was up 6.1 percent to $116.08 at 2:46 p.m. in the New York trade.
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Vogel estimates that podcasting revenue would increase by more than 300 percent in 2021, reaching around 200 million euros ($214 million). However, the company cut its gross profit by 103 million euros.