In 2019, Spotify (SPOT) - Get Spotify Technology SA Report announced that it would be expanding its focus beyond music to include several other audio formats on its platform. One of them is podcast. This space, which has high growth expectations, could be a very important driver of the company's revenues in the future.
Today, MavenFlix explains how Spotify can use this ever-more popular audio format, through the freemium model, to generate more top-line firepower in the future.
(Read more from MavenFlix: Why Global Expansion is Key for Spotify’s Success)
Audio is not just music
The audience for podcasts is growing, and consumer demand for this type of content on audio platforms is also climbing substantially. Thinking of the audio streaming industry as music only misses a substantial business opportunity.
It is expected that, by 2023, there will be more than 131 million podcast listeners, a sizable TAM (total addressable market) for Spotify. Following this trend is not only a nice-to-have, but a necessity, since 60% of digital listeners should also consume podcasts in that same year.
It’s like radio, but better
The growth of podcast audiences has also motivated companies to advertise within this space. However, this market is still very little explored if compared with radio – a medium that is most similar to podcasts.
In the US, more than 9 times more money is spent on radio ads than on podcasts, a dynamic that is likely to change in the coming years. With the use of radio becoming increasingly rare and podcasts gaining more space, money should flow from one medium to the other.
This could be a great opportunity for Spotify. In addition, podcasts provide better alternatives for ad placement. For example: while radio tends to lump advertisements in between song blocks, podcasts offer the flexibility of ad placement before, during or after each episode.
Currently, there are around 2.6 million podcast titles available on Spotify’s platform, all offered for free. However, alongside the ad model, the company could also choose to charge listeners in the future.
Spotify has been signing up celebrities to bring exclusive podcast content to its platform. Among the top names are the likes of Joe Rogan, Kim Kardashian, DC Comics, Michelle Obama, and Prince Harry.
On the day of the announcement of the acquisition of the Joe Rogan Podcast, SPOT stock appreciated 8%, indicating a positive view of the market on this type of initiative. Could further upside be in store?
Even with 90% of the company's revenue coming from paid subscribers, there is still plenty of room for growth in the 10% generated by ads, especially with the use of podcasts as a tool. As an alternative, subs revenue could also get a boost from Spotify’s podcast initiatives.
Based on the above, we believe that this could be a great time to buy Spotify shares. The company's investment in the podcast space should add value in the long term, favoring the bullish thesis on the stock.
(Read more from MavenFlix: Spotify Stock: 3 Reasons To Buy Right Now)
Which company do you think will win the most in the podcast space?
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting MavenFlix)