Wall Street Discusses Spotify After Analyst Day Offered Ambitious Goals
2022.06.09 16:31
Wall Street Discusses Spotify (SPOT) After Analyst Day Offered Ambitious Goals
By Senad Karaahmetovic
Shares of Spotify Technology (NYSE:SPOT) closed over 6% higher on Wednesday after the company said it expects to achieve $100 billion in annual revenue in the next 10 years.
For this ambitious goal to become a reality, Spotify’s 2021 revenue of $11.4 billion would have to increase by nearly 10 times. Still, CEO Daniel Ek, who held the four-hour presentation himself, remains very optimistic.
“Spotify will put out these pretty audacious targets and we are going after these because that’s how we see the world and we are going to invest behind that,” Ek said.
Spotify’s CEO also expects its gross margins to jump to 40% and its operating margins to 20% during that same period. Their gross margins are already at 28% following big investments in podcast and audiobooks departments. The big spending used for this expansion was the main reason for not reaching its long-term goals in the first place.
Even though Spotify took a big hit over last year’s controversy surrounding its most popular podcast, hosted by Joe Rogan, Spotify’s chief content officer, Dawn Ostroff, still sees podcasting as a $20 billion opportunity.
The company invested over $1 billion in podcasting with expectations to surpass their $215 million podcast revenue from 2021.
Spotify’s future 10-year plan also has them exploring other types of content besides music and podcasts, as they try to reach its goal of 1 billion users by 2030. They recently reported 422 million monthly users.
Three Wall Street analysts discussed Spotify’s ambitious plans in research notes released today.
Rosenbatt’s Barton Crockett: “Spotify’s Investor Day June 8 was impressive, but at times strained credulity. Positives included new disclosures that fleshed out the company’s long-standing contention that gross margins in its core music business have been trending positively, and that recent pressures are tied to podcast investments. Spotify also gave a reasonable-seeming expectation for those podcast investments to swing from headwind to tailwind in coming years, and for the core business (ex new growth investments) to trend towards the longterm target provided in the 2018 IPO of 10% operating margins. But we found the talk of long-term quadrupling of ARPU and attaining a 20% operating margin to be thinly supported.”
Morgan Stanley’s Benjamin Swinburne: “Three primary takeaways – 1) guidance is for more rapid gross margin expansion than expected, 2) core music margins have been scaling, and 3) it remains early days. Spotify’s history of product innovation and share gains, combined with a valuation not pricing in success, reinforce our OW view.”
Wolfe Research’s Deepak Mathivanan: “We came away feeling incrementally bullish on the company’s opportunity in the broader audio space and confident on the strategic initiatives to achieve strong growth over next several years. We also found the company’s additional disclosure on core music and podcast businesses helpful to parse out near-term investment areas and margin expansion potential over time. On targets, we think the medium-term and long-term financial outlooks are ambitious on first glance but see a path for SPOT to achieve them over time…While we are encouraged by what we heard on the analyst day, we prefer to remain on the sidelines until we see further progress towards the MT financial goals in the next few quarters.”
