While Spotify struggles to become a profitable company, a number of Wall Street analysts see podcasts as a safe bet.
Spotify’s most recent financial results emphasized just how much of a focus podcasts will have in the company’s future.
Spotify plans to spend $400-$500M on multiple podcast acquisitions in 2019 alone. In the company’s quarterly financial results, Spotify stated that its podcast expansion is an essential strategy for driving ‘top of funnel’ growth. Podcasts offer increased user engagement, lower churn, faster revenue growth, and higher margins.
Oh, and one other thing — they also come with drastically lower royalty costs. And, from Spotify’s perspective, podcasts also eliminate the endless renewals, haggles, and drama associated with licensing music content.
Already the company has purchased three podcasting companies in 2019, including Gimlet Media, Anchor, and Parcast.
Now, a research team at Guggenheim Partners — led by Michael Morris — has released a report detailing their analysis of the podcast-centric strategy. The quick summary: Spotify’s moves in the podcast world have elevated Guggenheim’s outlook on the company’s advertising revenue potential and overall growth.
Already, podcast advertising revenue is showing revenue promise for streaming services. In its recent analysis, Guggenheim estimates podcasts could generate an additional $250 million in annual revenue for the company.
Morris and the Guggenheim squad took keen interest in app-related stats.
The AppAnnie analytics firm reports that Spotify is now the 9th most downloaded app on Android in Q2 2019. That’s the highest quarterly ranking achieved by the app in more than two years, with podcasts and expanded audio content one possible cause.
“Sequential improvement in app downloads indicates new and returning user growth, a positive trend and supportive of a bullish view that the company’s global addressable market is well in excess of current streaming music subscriber levels,” Morris said.
Spotify’s focus on original, exclusive content isn’t happening by accident. The streaming service recently inked a podcast deal with former President Barack Obama, though that’s part of a potentially large number of exclusive content signings ahead. Alongside its content acquisition, Spotify has also been diversifying their advertising tools to help advertisers reach listeners based on their preferred types of podcasts.
Spotify CEO Daniel Ek says it’s still a very new market for podcasts. “Our view obviously is that while we are starting to flock to listen to podcasts, there’s still tremendous growth both in the US and internationally.”
In other words, it’s still ‘early days’ for podcasts — especially when it comes to Spotify’s bottom line.