Spotify expects earnings to match Apple’s potential within 10 years

– The streaming platform is eyeing $100 billion in revenue over the next decade

– An ambitious growth target implies a ninefold leap

– Would bring Spotify closer to Apple’s huge profits

Music streaming platform Spotify technology (SPOT: NYSE) predicts it could generate profits on a scale comparable to Apple within a decade, as it targets $100 billion in revenue.

“I believe our future is much bigger,” Chief Executive Daniel Ek said in a statement Wednesday, June 8, during the company’s Investor Day.

Investors took the bait, with Spotify stock jumping 6% to $116.03.

Last year, the company made gross profit of €2.59 billion on revenue of €9.67 billion, equivalent to $2.78 billion and $10.4 billion, respectively. dollars, implying massive growth over the next 10 years.

Spotify has invested more than $1 billion in bolstering its podcasting business, which Ek says has resulted in lower gross margins for the company.

CFO Paul Vogel joined the discussion, saying the investment will soon pay off, predicting podcast profitability over the next two years and a “significant ramp”, with gross margins of 30% 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 streak won’t last,” Vogel said, according to a FactSet transcript, adding that podcasting revenues jumped more than 300% in 2021. “We’re building a massive podcast audience, which is the foundation for monetization of our investments”, finance says the chief.

RAIN OF PROFITS IN SPOTIFY FORECASTS?

Ek said Spotify continues to grow aggressively, aided by machine learning and technology, and mentioned audiobooks as another massive growth opportunity, with annual revenue potential of around $70 billion and margins above 40%.

“From everything I see, I believe that over the next decade we will be a company capable of generating $100 billion in revenue per year, and that we will be able to achieve a gross margin of 40% and a 20% operating margin,” Ek said.

This would imply nearly $20 billion in annual operating profit and $15.8 billion in net profit in 2031, or thereabouts, or €17 billion and €13 billion based on the rates of current changes. Last year (until September 2021) Apple (AAPL: NASDAQ)one of the largest profit generators in the world, made an operating profit of $108.9 billion on revenue of $365.8 billion, implying a margin of around 30% .

Spotify Finance
2021 (millions) 2031 (millions)*
Revenue €9,668 ($10,364) $100,000
Gross margin 26.80% 40%
Operating margin 1% 20%
Operating result €94 ($100.8) $20,000
Earnings -34€ (-36.5$) $15,800
Source: Spotify, Shares *Spotify prediction (Spotify reports in €)

Spotify shares have lost more than half their value this year as stock markets have fallen as investors have been cautious about higher-risk stocks, especially those offering jam tomorrow. In April, the company announced an unexpected drop in subscriber numbers for the first time in a decade, sending shares to their lowest level since their IPO in 2018.

The stock is up 23% in the past month, however, compared to the S&P 500’s 3% gain over that period.


Date of issue: June 09, 2022