Spotify (NYSE:SPOT) has an opportunity to take a large amount of advertising revenue from Sirius XM (NASDAQ:SIRI) and traditional, terrestrial radio. Those revenue gains would enable the company to become meaningfully profitable and tremendously boost SPOT stock in the process.
Spotify stock soared on June 18 after the company announced that it had signed a deal with AT&T’s (NYSE:T) Warner Bros. Under the agreement, Spotify will air scripted podcasts based on DC Entertainment characters.
The deal is just one of several that Spotify has made recently to improve its podcast offerings. Specifically, in the first quarter, the company bought The Ringer, which streams ” sports, entertainment and pop culture podcasts.”
In May, it signed very popular comic podcaster Joe Rogan to a contract; Rogan’s podcast will start streaming on Spotify on Sept. 1. And on June 18, The Wall Street Journal reported that ppop icon Kim Kardashian West had signed a deal to co-host a podcast about criminal justice.
These deals, along with changes to the economy and technology, leave Spotify very well-positioned to greatly increase its share of the worldwide radio ad market which is estimated to have been worth $34.8 billion in 2019 and is expected to climb to nearly $36 billion as of December 2022.
SPOT Stock and the Work-From-Home Trend
According to a CNBC survey reported on June 18, 28% of American employees are now working from home. That’s positive for SPOT stock, as people working from home can easily listen to its programming, either on their smartphones or on smart speakers.
Most employees who are working in offices can’t listen to whatever they want while they’re doing their jobs. But when people work at home, their bosses generally do not restrict what they listen to.
So, for example, millions of American millennials who want to listen to music or the podcasts of Joe Rogan, Kim Kardashian West or DC Comics while they work from home can do so. And as someone who’s worked from home for many years, I know that listening to music or talk shows while working makes the days go faster.
The work-from-home trend will allow many more consumers to spend significantly more time listening to content on Spotify. And the podcasts that the company has recently added will incentivize many more people to listen to Spotify while they work.
As a result, the company’s platform will become much more attractive to marketers, causing its ad revenue to surge.
Taking Ad Revenue From Traditional Radio
In the last couple of years, new cars have come with Apple’s (NASDAQ:AAPL) CarPlay and Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Android Auto.
These in-car operating systems allow consumers to easily stream Spotify in their cars. In fact, my mother, who’s not very technical at all and would have previously not been able to stream anything from her phone in the car, recently bought a new car and was very pleased that she would be able to listen to Spotify in her new vehicle.
Meanwhile, Spotify’s new podcasts should draw millions of drivers who enjoy talk shows away from traditional radio. On traditional radio, most talk shows either consist of silly, over-the-top comics, news or conservative political commentators. And it’s hard to find much entertainment talk at all on traditional radio during times other than the traditional morning and afternoon commuting hours.
Spotify Can Take Share From Sirius XM
I’m a Sirius XM subscriber. In the last few months, I’ve paid about $15 per month to stream its content to my car and another $15 per month to stream its content to my devices. I’ve been meaning to call them to ask for a better deal, but I haven’t gotten around to it. Now I’m thinking about switching to Spotify.
I’m considering switching because Spotify Premium is just $9.99 per month, and its ad-supported version, which also includes podcasts, is free. Now that Spotify can be very easily streamed in many cars, while the company is starting to offer high-profile podcasts, I think it’s definitely going to take meaningful share from Sirius.
Moreover, Sirius’ top comic personality, Howard Stern, is 66 years old and has recently been accused of racism. As a result, he may have trouble connecting with younger Americans, so Spotify’s new, younger podcasters could attract a significant portion of his audience.
The Bottom Line on Spotify Stock
With Spotify making huge additions to its podcast lineup, many more Americans working from home, and the platform becoming much easier to access in vehicles, Spotify’s audience and ad revenue should surge tremendously. As a result, investors should buy SPOT stock.
As of this writing, Larry Ramer owned Spotify stock. Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been airline stocks, oil stocks and Snap. You can reach him on StockTwits at @larryramer.
