Impact of Spotify’s Podcast Splurge Remains Unclear
Spotify’s guidance for the second half of 2020 indicates upcoming podcast content does not seem to be increasing 2020 monthly active users compared to prior expectations, according to Wells Fargo media analyst Steven Cahall.
“Skeptics will ask why the big podcast investments aren't driving an increase at least to MAU guidance vs prior (e.g. Joe Rogan has 8-10mm listeners). Bulls will argue it's early days and podcasts will continue to drive sub growth and reduce churn, adding to SPOT's market share.”
Podcast empires aren’t built overnight: While investors are betting that exclusive podcast content will result in higher MAUs and/or gross profit for 2020 and beyond compared to previous projections, management reiterated its total MAUs guide of 328-348m for FY20. Spotify’s stock has risen around 70% since the exclusive deal for The Joe Rogan Experience podcast was announced in mid-May. The deal is giving investors hope that exclusive content will make spotify’s business model more like Netflix’s. The idea is that exclusive podcast content will lead to “higher subscriber growth, lower subscriber churn, increased engagement, greater ability to move consumers from the free funnel to premium and eventually reverse negative ARPU trends (pricing power),” according to Jeffrey Wlodarczak, analyst at Pivotal Research. Hile high profile names like Joe Rogan can make an impact, Wlodarczak says “What the market appears to be overestimating is the availability of exclusive talk content that moves the needle.”
Podcast engagement trends upwards: Engagement with podcast content on Spotify’s platform is on the rise, with 21% of MAUs listening to podcasts, up 2% points from the previous quarter. Currently, Spotify’s podcast catalog has over 1.5 million shows, 50% of which launched in 2020.
Q2 Earnings Screenshot
Premium subscribers grew +27% year-over-year to 138 million vs. consensus of 137 million and guidance of 133 million to 138 million.
Spotify's total MAUs grew +29% year-over-year to 299 million vs. consensus of 298 million and guidance of 289 million to 299 million.
Monthly churn dropped 46 basis points year-over-year to 4.2% but rose about +8bps quarter-over-quarter as Spotify due to trial cadence.
Revenue of €1,889 million was 3% below expectations but gross profit of €479 million was in-line with the street's consensus.
