Spotify CEO Addresses Profitability Concerns
Spotify CEO Daniel Ek has addressed the concerns of company investors that the audio-market has limited profitability.
The company has stated that they have plans to expand into new businesses globally and hope to hit one billion subscribers.
Spotify are looking to improve their creator tools, add audiobooks to its line-up and eventually move into sports, news and education.
Investor concerns aren’t unwarranted, as Spotify has seen a 55% drop in share price this year already, and a 70% drop since their all time high last year.
During the presentation, Ek reminded investors of the company’s success over the last four years since it went public, pointing out its millions of loyal customers and the success of it’s music recommendations and podcasts.
Spotify’s new plan hopes to see it reach one billion listeners by 2030, with an annual revenue of $100 billion USD ($139 billion AUD).
“That’s why we’re investing so aggressively in building not only a bigger but, we’re thinking, a much more profitable business.”
The CEO believes that it’s plans, and strategies haven’t been well explained in the past.
“We all know that we’ve weathered our share of challenges, but we’ve also morphed pretty dramatically as a business, and I’m not sure that journey is fully understood.”
In a follow up interview, Ek added that “[Spotify] is a much bigger business than the one you saw in 2018. It’s a much more resilient and diversified business than you saw in 2018.”
The company have said that the podcast sector is expected to become profitable within the next year or two, with a potential 40-50% gross margin. According to Spotify, one in three people on the platform listen to podcasts, and the format makes up 7% of all listening hours.
Audiobooks seem to be the next major area of investment for the company.
“We’re absolutely dead serious about this space,” said Ek. “We think it’s bigger than most investors realize.”
Audiobooks make up 6-7% of the book market, which is valued at $140 billion USD ($195 billion AUD). However, Ek believes that the medium could lead to $70 billion USD in annual revenue and 40% + margins.
Spotify have already announced that it would acquire audiobook platform Findaway, in a deal worth around $125 million USD. The deal is currently under evaluation by the Justice Department’s antitrust division, in regard to the risk of industry consolidation.
Audible, Amazon’s own Audiobook platform, currently controls around 48% of audiobook sales in the US. However Spotify’s head of Audiobooks, Nir Zicherman, stated that “[Audible] doesn’t fuel innovation…Spotify will be pushing the industry forward.”
“We’ve moved from a music discovery and playback service to a fully-fledged platform where artists and creators can create, engage and earn,” added Ek.