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Emerging Markets Are a Bright Spot for Spotify

By Motley Fool Staff – Apr 10, 2018 at 12:00PM

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The leader in music streaming has its work cut out for it, but its position in emerging markets sets the company up for some big potential growth down the road.

Spotify (SPOT -2.21%) went live on the public markets last week. The music-streaming specialist has its fair share of competitive threats and risks, but its dominant position in emerging markets could be a huge driver of success down the road.

In this segment from Industry Focus: Tech, analyst Dylan Lewis and Motley Fool contributor Evan Niu discuss Spotify's opportunities in emerging markets.

A full transcript follows the video.

This video was recorded on April 6, 2018.

Evan Niu: It's also worth noting that Spotify has a really dominant position in the emerging markets because of its free tier. I mean, a lot of people in emerging markets can't afford $10 a month. Apple basically is not really willing to go there. They don't have a free version, they only have the paid version. So, in effect, Apple's not addressing very large swaths of the market that Spotify is willing to, particularly in these emerging markets. So, I think that they do have a lot of levers they can pull and some avenues to really pursue growth.

Dylan Lewis: Yeah. And, the free side for them has not been a profitable one for a long time. That recently changed. I think, maybe in the late quarters of 2017 or in 2017 as a whole, they'd been losing money on that segment of users for a long time, recently switched it over. So, there's some optimism there. It's also a huge engine for paid growth. That's the on ramp that they see for a lot of their users. So, any user growth is good user growth for Spotify. They obviously want to see people paying, but they'll take what they can get.

Niu: Right. I mean, I think as we go forward, as the overall market for paid streaming continues to grow, because that's where it's heading, if Spotify can just maintain and defend its position as the top dog -- which they're doing a really good job of right now. I mean, they've really maintained this very consistent proportion vs. Apple Music of, at almost any given time, keeping twice as many subscribers over the past two years. It's been a very steady correlation that at any given time, they have twice as many subscribers. If they can just keep that up, I think that they'll probably keep executing pretty well.

Dylan Lewis owns shares of AAPL. Evan Niu, CFA owns shares of AAPL. The Motley Fool owns shares of and recommends AAPL. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool has a disclosure policy.

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