Spotify (NYSE:SPOT) is the most popular digital music service in the world, boasting nearly 250 million customers worldwide to whom it gives access to millions of songs. But the digital music industry is competitive, and management rightly understands the need to turn to other avenues for growth. So far, Spotify hasn't exactly performed like other growth stocks, so maybe a new approach will help it turn the corner. The company decided to invest in the creation and production of original podcast content and vowed to divert a small fortune (between $400 million and $500 million to be exact) to this. In addition to partnering with various celebrities to create podcast content, Spotify made several moves to increase its presence in this market. Here are just some of the key acquisitions and partnership deals Spotify made to implement its podcast strategy:
- Back in February, the company acquired Gimlet Media Inc, an independent producer of podcast content, and Anchor, a provider of podcast creation and publishing services.
- In March, Spotify acquired a podcast storytelling studio by the name of Parcast.
- In June, Spotify announced a partnership with Higher Ground, a podcast production company owned by former president Barack Obama, in order to produce exclusive podcast content.
- In August, AT&T partnered with Spotify to bring customers "more music and podcast options."
Fortunately for Spotify, its podcast content strategy seems to be working, or at least that's what the company's third quarter financial results -- released on October 28th -- seem to suggest.
Numbers don't lie
Spotify's metrics showed improvement across the board during the third quarter. The company's monthly active users increased 30% year over year and 7% sequentially, and its premium subscribers jumped by 31% year over year; the company now boasts 248 million active users and 113 million subscribers. As far as podcasts are concerned, Spotify noted a sequential increase of 50% in podcast audience and 39% in the number of hours streamed, which, according to the company, is an indication that its strategy is working.
Further, Spotify's revenues grew 28% year over year and the company reported an operating of $54 million, after reporting an operating loss in the previous quarter. Given this performance, it isn't surprising that Spotify's stock has been rallying: The company's shares are up by about 12% since its earnings release as investors seem increasingly enthusiastic about the company's prospects.
How long can Spotify keep this up?
It is worth noting that Spotify is still very early in the implementation of its podcast content strategy. The so-called "golden age" of podcasts -- according to the tech company itself -- is only beginning, and interest in podcast content has been rising worldwide, including in many of the developed and emerging market Spotify occupies . Spotify will likely continue to divert a lot of money to try to increase its hold in this market, but if its results so far results are any indication, Spotify's move was the right one, and both the company and its shareholders will reap the rewards for years.