Spotify (NYSE:SPOT) may be the world’s largest music streaming app, but the company has become so much more than that. While music will always remain its core business, the streaming giant has announced a slew of new features for advertisers, podcasters and musicians. Spotify launched the latter initiatives in an effort to expand the company’s reach beyond the realm of music and grow its global footprint. The moves have sent SPOT stock soaring over the past year.
One area of growth for the company is podcasts. As audio entertainment goes mainstream, Spotify is heavily invested in growing this segment. Podcasts have created a huge revenue stream for the company. This is because the target market for podcasters can range from celebrities to a little-known individual speaking from a tiny studio. Podcasts are also a huge growth opportunity for Spotify.
Since SPOT stock has numerous non-cyclical positive catalysts, including podcasts and music, there’s no better time to get your hands on this high-growth name.
SPOT Stock Hits Play on Podcasts
While music is the segment that catapulted Spotify into the limelight, podcasts are where the future of the company lies. There are two main reasons why this business will be a huge revenue generator for the company.
First, the number of podcast listeners is rising. A research report by Triton Digital and Edison Research shows that 100 million Americans listen to podcasts each year. Additionally, 62% of Americans now use some form of voice-assistance technology.
For Spotify, there’s an opportunity for growth in the space, since the company’s podcasts reach just 28.2 million ears in the U.S. In an effort to exploit that opportunity, Spotify is investing heavily in the “creator economy” to help creators engage with their audiences as effectively as possible.
Secondly, the rise of the “creator economy” will help Spotify generate meaningful sales from podcasts . Spotify recently announced its acquisition of Betty Labs which created an audio app called Locker Room. The audio platform caters to sports fans and allows users to react to games in real-time and engage in discussions. This intimate audio format will allow sports influencers and public figures to engage with their audiences directly.
Spotify has made a big push in podcasts, investing nearly $1 billion in this segment in 2019 and 2020. Not only will this line of business help increase user engagement on the platform, but it will also enable Spotify to benefit from ad revenue. Podcasts have proven to be a major revenue generator, since they allow businesses to target specific audience groups.
Music Is Still a Big Business for Spotify
Spotify may be putting its resources towards new audio formats, but music remains its biggest business. The company has a major presence in the U.S., but it has plenty of growth opportunities in Europe and Asia. In 2021, Spotify has plans to enter 80+ markets, unlocking potential revenue from billions of new users.
Spotify can also grow in existing markets like the U.S. Although its presence in the latter nation is vast, research shows that only one-third of Americans use music-streaming services. As a result, Spotify has room to grow in the U.S.
Finally, Spotify’s vast library of music gives it the opportunity to rake in ad bucks. The company continues to maintain its free tier of streaming music which includes ads. And the company recently announced an artist promotion feature as well. The initiative allows artists to promote their music on certain playlists in exchange for receiving lower royalties from Spotify.
So while podcasts are a major area of growth for Spotify stock, music still remains one of its biggest positive catalysts.
The Bottom Line on SPOT Stock
I think Spotify is still very much in “growth mode.” The company’s podcast business has a great deal of potential. As the streaming platform adds more podcasts, its ad revenue from the segment will grow and its user base will increase.
A second positive catalyst for the company is its global presence. With Spotify set to enter a number of international markets this year, national and global brands will have greater incentives to advertise on the platform.
Spotify’s strong outlook makes SPOT stock a great buy right now.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.