(Bloomberg) — Spotify Technology SA expects its podcast operation — an expensive bet that has sparked investor skepticism — to turn profitable in the next one to two years.
“This drag will not last,” Chief Financial Officer Paul Vogel said Wednesday at a presentation for investors. He was joined by Chief Executive Officer Daniel Ek and other Spotify officials.
Spending on podcasts has been a source of worry for Spotify investors: The company laid out more than $1 billion to become the No. 1 name in that business. Those concerns sent the stock tumbling in April when Spotify said costs for nonmusic content were weighing on profitability.
The pressure on margins will let up after 2022, executives said at the presentation. Over the next three to five years, Spotify sees podcasts generating gross margins 30% to 35%, Vogel said. Longer term, the company anticipates margins of 40% to 50% — an increase of 10 percentage points from previous predictions.
Spotify shares jumped during the presentation, rising almost 9% before paring some of the gain. The stock was up 6.1% to $116.08 at 2:46 p.m. in New York trading after reaching historic lows in May.
Podcasting revenue grew more than 300% in 2021 to reach nearly 200 million euros ($214 million), Vogel said. However, the business reduced gross profit by 103 million euros.
Officials emphasized the company is building not only subscription revenue, but also a robust advertising business and marketplace for podcast creators.
The big goal, they said, is a “Spotify machine” that will offer many types of listener programming in one consumer app. This, they said, will attract 1 billion users globally and more than 90 billion euros in revenue in the next decade. Sales last year totaled 9.67 billion euros.
“That’s the thing you just have to get about Spotify,” Ek said. “We’ll put out these big, audacious targets.”
Podcast consumption now accounts for more than 7% of all listening hours on the platform, said Dawn Ostroff, chief content and advertising business officer, and Spotify monetizes 14% of that listening time.
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