The story of Swedish audio streaming service Spotify is one of growth: moreusers, more songs and artists available, and also more revenue. But for thefirst time since the IPO in 2018, the stock market has seen a different trend:a downward trend. The stock is currently more than 65 percent lower than ayear ago.
In mid-October, Spotify’s share price reached a record low of $78.50. Theimmediate cause was the news that Chinese TikTok owner Bytedance is in talkswith music labels to roll out its music streaming service Resso worldwide.That service, now only available in India, Indonesia and Brazil, wouldeventually be linked to TikTok, so that the more than a billion users of thatpopular video app can directly look up the songs they discover there in Resso.Should that happen, Bytedance will have a hard time overtaking Spotify, whichhas taken a huge lead over the competition. Worldwide, 433 million people nowlisten to Spotify every month. An increase of almost 20 percent from the 365million a year ago. In comparison: a competitor like Apple Music has justunder 100 million users. Other providers such as YouTube Music from Google andAmazon Music roughly half that.
Not everyone agrees with the lower valuation that Spotify, like other listedstreaming services, such as Netflix, has to deal with. According to analystAndrew Marok of investment bank Raymond James, streaming services are lumpedtogether too much by investors. Streaming music is a much more stable marketthan movies and series, where providers face price competition and higherchurn due to users who switch to other platforms. That churn does not knowSpotify with its loyal crowd of listeners, Marok argued in June.
Spotify is also by far the most popular platform in the Netherlands, saysanalyst Ed Achterberg of market researcher Telecompaper. His data shows thatSpotify has about 40 percent of the market here. Significantly more thanYouTube Music (around 10 percent) and Apple Music (under 5 percent). “Youngpeople in particular have Spotify on their mobile phones en masse. Theappreciation for the app is particularly good among the Dutch, and themajority also say they recommend the app to others,” says Achterberg.
Not all those satisfied users provide Spotify (annual turnover 9.7 billioneuros) with the same amount of revenue. The company has 188 million Premiumsubscribers worldwide. These are people who pay monthly and listen to musicad-free. This group generated 2.5 billion euros in turnover for the company inthe previous quarter. An even larger group of 256 million users listens forfree, but hears commercials in between. Spotify generated 360 million euros inadvertising revenue in the past quarter. In short, almost 90 percent of therevenue was collected from about 40 percent of the users. In addition, aquarterly loss of 194 million euros was reported below the line, mainly due tosharply increased personnel costs, acquisitions and marketing aimed at youngpeople and emerging markets. Because the music service is looking for moresources of income. The company expects to make a profit from podcasts withintwo years. It invested about 1 billion euros in this, which was at the expenseof profit and which also deterred the necessary investors. Spotify also sees afuture in audiobooks. It paid 117 million euros for audiobook platformFindaway.
Whether Spotify really is more than just music, the near future will show.Spotify will release its third-quarter results on Tuesday.