In line with Citi, Spotify’s large wager on podcasts is failing

People walk past the New York Stock Exchange (NYSE) the morning the music streaming service Spotify begins trading stocks on the NYSE on April 3, 2018 in New York City.

Spencer Platt | Getty Images

Spotify’s multi-million dollar bet on podcasting may not work, Citi analysts wrote in a statement to customers on Friday.

“The rate of premium gross additions (up to 3rd quarter 20) and app download data (up to 4th quarter 20) shows no significant benefit from recent podcast investments (which began in 2019),” the analysts write . The company downgraded the stock to sell it from neutral.

Spotify’s stock fell more than 6.5% in the afternoon.

Spotify started its podcasting project in early 2019 after taking over podcast companies Gimlet Media, Anchor and Parcast. Since then, the company has acquired sports and entertainment news company The Ringer, as well as Megaphone, which will bolster its ad tech business. Millions have also been spent receiving exclusive rights to stream celebrity podcasts, including those of Joe Rogan, Kim Kardashian West, Michelle Obama, and The Duke and Duchess of Sussex.

The idea was that by providing exclusive content for the app, the company could strengthen its advertising business and gain premium subscribers. Investors seemed to like the message, sending the stock up 31.76% in 2019 and 110.4% in 2020.

But now analysts are looking for the company to show that the investments have paid off.

“So far, we have not seen any significant positive effects on app downloads or premium subscriptions,” the Citi analysts write.

“If we saw a significant positive inflection in app downloads or premium subs (due to higher gross additions or significantly lower churn), we would change our minds,” they added. “We fear, however, that if Spotcasting doesn’t provide Podify with a way to break away from its reliance on music labels, the road may reassess the underlying value of the business. That would be bad for Spotify’s multiple and equity value.”

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