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Spotify Takes On YouTube With New Video Podcast Push and Strong Subscriber Growth

Spotify's (SPOT) stock surged Wednesday following a promising earnings report and bullish subscriber projections, signaling the platform's commitment to expanding its hold on both audio and video content.

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Despite a slight dip in quarterly earnings, Spotify remains on an upward trajectory, showcasing robust user engagement, new monetization tools, and an ambitious shift into video.

Record Subscriber Growth and Financial Highlights
Spotify closed its third quarter with an impressive 640 million monthly active users (MAUs) and 252 million premium subscribers, marking double-digit growth compared to last year. This increase surpassed Spotify’s own projections, fueling a 9.3% rise in the stock price to $458.47 in early trading, up 141% over the past year. Third-quarter earnings posted at €1.45 per share on revenue of €3.99 billion, slightly missing analysts’ estimates of €1.68 per share on €4.02 billion revenue.

Spotify also reported an increase in gross margin to 31.1%, a marked improvement from last year’s 26.4%, attributed to content cost efficiencies. In its guidance, the company anticipates fourth-quarter MAUs reaching 665 million, with premium subscribers growing to 260 million and gross margin climbing to 31.8%.

Analyst Ratings: Proceeding with Caution
Analyst reactions varied following the report. PhillipCapital analyst Jonathan Woo downgraded Spotify from "Buy" to "Accumulate," citing the recent price surge and suggesting a more cautious approach as the stock appears fully valued. However, Woo raised his price target by 15% to $485, indicating ongoing confidence in Spotify’s growth trajectory. Others echoed Woo’s sentiment; Piper Sandler maintained a "Neutral" rating despite increasing its price target from $330 to $450.

Other analysts struck a more optimistic tone. Evercore lifted its target to $500, KeyBanc to $520, and Benchmark to $520 as well, all reflecting a positive outlook fueled by Spotify's projected user growth and enhanced profitability.

Competing with YouTube: New Monetization for Video Podcasts
In a bold move to attract more content creators, Spotify announced a revamped “Partner Program” allowing podcast hosts to monetize their video content beyond ad revenue. The platform aims to incentivize creators by rewarding them for engagement metrics, echoing YouTube’s model of shared ad revenue. By expanding video podcast capabilities, Spotify hopes to position itself as a go-to platform for video content, capitalizing on a format where 250 million users have already tuned in.

Starting January 2, 2025, creators in select regions, including the U.S., U.K., Canada, and Australia, will be able to apply to join this program. Spotify is also enhancing its video offerings with features like chapters, comments, pinch-to-zoom, and thumbnail scrubbing, further appealing to creators looking for a more interactive experience for their viewers.

Additionally, Spotify premium subscribers will soon enjoy ad-free video podcasts—a significant step aimed at drawing viewers away from YouTube and toward Spotify’s own ecosystem. This move reflects the platform's broader vision of offering an uninterrupted experience, particularly as more than two-thirds of podcast listeners express a preference for shows with video components.

Strategic Roadmap: Building an All-in-One Platform
Spotify’s expansion into video aligns with a broader strategy to become more than just an audio streaming platform. The new tools and features designed for creators, such as the ability to upload clips, select thumbnails, and track performance analytics, position Spotify as a comprehensive platform that supports creators in multiple formats. For listeners, enhanced video recommendations and clips across the app aim to deepen engagement and drive viewers to full-length episodes.

Spotify’s upcoming inclusion in the MSCI World Index on November 25 is expected to further boost its visibility, potentially adding new institutional investors. With continued growth in subscribers, significant gross margin improvements, and a strategic focus on both audio and video, Spotify seems well-positioned to capture even more of the digital streaming market in the years to come.


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