Spotify Q4 2019: Podcasts Continue to Drive Growth

Spotify’s Q4 2019 results show podcast streaming jumped by 200%YoY, helping the company register healthy growth in monthly MAUs and premium subscribers. Notable points from its results:

Growth in MAUs and premium subscribers

  • MAUs grew a healthy 31% YoY and 9% QoQ, reaching 271 million.
  • Premium subscriptions too grew 29% YoY and 10% QoQ exceeding 124 million subscribers.
  • Growth re-accelerated in North America, Europe, and Latin America, while the rest of the world which includes APAC, MEA (where Spotify entered recently) continued to be the fastest-growing in terms of MAUs. This growth was driven by promotional activities like free Spotify premium for the first 3 months, price cuts, customized campaigns, etc. One such successful customized campaign is Spotify Wrapped which gives a personalized playlist of songs to its users based on what they have listened the most throughout the year. Spotify claimed that it engaged more than 60 million total users which equate to around 22% of the total Spotify user base.
  • Spotify offering 3 months free premium subscription was expanded to the family plan compared to individual and student plan last quarter.
  • Partnerships with other industry players and the lower subscription price in emerging markets also bolstered growth.

Counterpoint- Spotify Q4 2019: Podcast Continues to Drive Growth

The podcast continues to grow

Podcasts are enjoying good uptake across all platforms – especially Apple Podcast. Spotify had been a laggard but is now catching up and saw strong growth in Q4 2019. 16% of MAUs engage in podcast consumption on the platform. Spotify has more than 0.7 million podcast episodes available. To capitalize on global consumption trends, 26 global podcast shows were launched in Q4 2019. As claimed by the streaming giant, podcasts have helped the company lower the churn rate by 80 bps annually and 50 bps sequentially and therefore Spotify is continuously acquiring popular podcast brands.

2020 is again an investment year

2020 will continue to be an investment year for Spotify. The management has decided to invest in podcasts, and technologies to make the product even better. We expect Spotify will continue spending on promotional offers to attract more users. These investments have helped Spotify grow revenue 24% YoY but at the same time, there is a little compromise on the profit margins.

In terms of user acquisition, Q4 2019 has been a good quarter for Spotify. It exceeded its high level of guidance in MAUs, subscribers, and revenue.

The one parameter where it continues to struggle is net profit. Despite double-digit growth in revenue, it made a loss of € 77 million (approx. USD 85 million). The major expense for the Swedish giant comes in the form of royalties to music labels, investment in the product and podcasts, and the unavoidable social costs which the company had to pay in the form of payroll taxes associated with stock-based compensation. Spotify can improve on this parameter by improving consistently on the gross profit margin with every passing quarter.

Music streaming has come a long way now. We believe this era to be the golden period for the music streaming industry the competition will likely drive innovations in the music streaming space in the years to come.

US music streaming accounts for 80% of the total US music industry, compared to just 5% ten years ago. Consequently, the competition is also getting fiercer. Tech giants like Amazon, Apple, Google have entered and having sufficient cash in hand, are experimenting and innovating to create USPs for themselves. Amazon is trying lossless music. Apple Music is making technological improvements in the app like the introduction of night mode, curated playlists to target a group, etc. Similarly, YouTube Music has the advantage of its video service plus a huge Android installed base it can leverage. Regional players like Gaana in India, Anghami in MEA have a strong grip in their respective regions.

The important point to note here is that both the global and regional players are focusing on creating exclusive content by either launching their own channels or by acquiring podcast companies. Seeing the growing exclusive content opportunity, music streaming platforms are in the process to become the audio streaming platforms and podcasts will continue to feature strongly in 2020.