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Music-streaming platform Spotify Technology SA expects its podcasting unit to become profitable within the next couple of years, and its overall business to generate $100 billion in annual revenue within the next decade.
“I believe our future is a lot bigger,” Chief Executive Daniel Ek said Wednesday, speaking at the company’s investor day. That would be massive growth: In 2021, the company took in $10.9 billion in revenue. Spotify shares
SPOT,
surged 6% on Wednesday after Ek’s bullish forecast.
Spotify has sunk more than $1 billion into bolstering its podcasting business, which Ek said has been dragging down the company’s gross margins.
But Chief Financial Officer Paul Vogel said that investment will soon pay off, projecting profitability for podcasts in the next year or two and “meaningful ramp,” with gross margins of 30% to 35% for podcasts, over the next three to five years. In the long term, Ek said podcasts could produce gross margins of 40% to 50%.
“This drag will not last,” Vogel said, according to a FactSet transcript, adding that podcasting revenue jumped more than 300% in 2021. “We are building a massive podcast audience, which is the foundation of monetizing our investments.”
Ek said Spotify is still growing aggressively, aided by machine learning and technology, and mentioned audio books as another massive growth opportunity, with about $70 billion in annual revenue potential and margins above 40%.
“From everything I see, I believe that over the next decade, we will be a company that can generate $100 billion in revenue annually, and that we can achieve a 40% gross margin and a 20% operating margin,” Ek said.
Spotify shares have tumbled 50% year to date, with investors souring on the company as growth unexpectedly slowed. In April, the company announced a decline in subscribers for the first time in a decade, sending shares to their lowest prices since going public. The stock has rallied 26% over the past month, however, compared to the S&P 500’s
SPX,
4.6% gain over that span.
