Citi sees Spotify exceed margin growth targets (NYSE:SPOT)

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Citi acquires Spotify (NYSE: SPOT) story on how it will increase gross margins going forward, which is bullish for the audio streamer’s net worth, he says.

Investments in growing Spotify’s music and podcast business haven’t helped or hurt gross margins to date, wrote analyst Jason Bazinet. But the company should see greater tailwinds from its market effort and fewer headwinds in podcasting going forward.

Spotify’s gross margins have been well below a long-term target of 40%, he noted – standing between 25.5% and 26.8% over the past four years – a fact. which Bazinet attributes to music content owners having the upper hand in the eternal battle between content owners and distributors.

This helps explain why Spotify has sought to expand its audio platform beyond music, to podcasts and likely audiobooks, and perhaps even one day to verticals like live sports, he said. -he declares.

Gross margins have been used on the street as an indicator of the effectiveness of Spotify’s strategy (SPOT), and the stagnation over the past few years reflects “two tailwinds and a headwind,” Bazinet said: tailwinds came from Marketplace (his initiative to promote specific music) and a gradual migration from majors to independents. So far, the headwind has come from heavy investments in podcasting.

These forces have largely offset each other — but they’re starting to shift, as the hurdles to podcasting ease and Marketplace continues to grow, meaning Spotify can look to increase its margins in 2023 and beyond, Bazinet said.

Also today, Spotify is looking to improve the discovery of live shows by replacing its Concert Hub with a new live event streamproviding a personalized view of live events with information from ticketing partners, including Ticketmaster (LYV).

Spotify (SPOT) stock is up 1.7% Thursday.

Spotify (SPOT) CEO Daniel Ek focused on margins during the company’s recent investor day, saying the business was great, except for that one outlier, which he has. attributed to heavy investments. Podcasting, for example, is not yet profitable but “we believe it has gross margin potential of 40-50%.”

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