Spotify Business Side Of Music Streaming

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Spotify Business Side Of Music Streaming

Spotify Business Side Of Music Streaming

The poor margins of Spotify's music business are a significant criticism from investors. The firm claimed gross margins that were about 25% in 2018. As a whole, this has remained mostly stable as a result of how much time I devote to podcasts, but Spotify stated that its more established music section is experiencing significant margin expansion. Music gross margins increased by about 0.75 percent every year from 2018 to 2021, reaching 28.3 percent in that year. The business should reach gross margins of 30% to 35% in the long run, according to management.

The expansion of Spotify's two-sided marketplace, a marketing tool that aids labels and artists in getting their work seen on the site. Only $21 million in gross profit dollars were generated in 2018 by the two-sided market. That increased to $167 million by 2021, and 2022 should see another 30% growth. This promotional marketplace offers highly good gross margins and can be the main force behind Spotify's gross margin improvement over the next three to five years, even if it still only represents a small portion of the company's $11.8 billion in trailing-12-month sales.

Since 2018, Spotify's consolidated gross margins have been stagnant around 25% to 26%, mostly as a result of the significant expenditures it is making in podcasts. In an effort to help content producers monetize their work, management believes that the sector will experience tremendous growth over the next 10 years. The firm presented some useful information on the performance of these assets and its long-term objectives during the investor day.

Spotify's long-term financial goals may have been the main lesson from its investor day. Achieving $100 billion in yearly sales, 40% gross margins, and 20% operating margins by 2030 is Daniel Ek's stated objective. These are lofty objectives that call for several years of revenue growth at a rate of 20% or more as well as consistent operating leverage.

How is he going to do this? The first way is through promoting podcasts and music, both of which have significant global target markets. Adding additional audio verticals is the second strategy. Audiobooks are the first newly added vertical. Although there were little specifics provided on the consumer strategy, it is likely to be related to the company's proposed acquisition of Findaway, a firm that distributes audiobooks. Uncertainty surrounds Spotify's next steps in the audio industry after audiobooks, although live audio, sports, and news all present huge business prospects. Investors should keep an eye out for announcements over the next several years.

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