Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Spotify Wants to Recommend a Podcast for You

By Evan Niu, CFA - Nov 20, 2019 at 9:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Swedish tech company launches an algorithmically curated podcast playlist.

Music-streaming leader Spotify ( SPOT 2.80% ) is betting big -- as in, $400 million big -- on podcasts. That's how much the company has spent this year on three different acquisitions (Gimlet, Anchor, and Parcast) designed to supercharge its podcasting capabilities in an effort to transform Spotify into an all-encompassing audio platform beyond just music streaming.

"With the world focused on trying to reduce screen time, it opens up a massive audio opportunity," CEO Daniel Ek wrote in a February blog post announcing the new strategy. "This opportunity starts with the next phase of growth in audio -- podcasting."

Spotify app displayed on a tablet, smartphone, and computer

Image source: Spotify.

Discovering podcasts

This week, Spotify announced that it was launching Your Daily Podcasts, a personalized playlist that algorithmically recommends new podcast episodes to users. Content discovery is one of Spotify's greatest strengths and most powerful differentiators, so the move comes as no surprise. The company already offers other types of personalized playlists -- like Daily Mix and Discover Weekly -- designed to unearth new music for users.

Any user that has listened to at least four podcasts in the past 90 days will see Your Daily Podcasts in their Spotify app. The company's algorithms will analyze recent streams and follows, among other podcast-related behavior, to recommend new episodes. The machines will know to play story-driven shows in order, so they won't spoil any endings.

Your Daily Podcasts is rolling out to free and premium users in markets including the U.S., Sweden, the U.K., Germany, Canada, Brazil, Mexico, Australia, and New Zealand.

Podcasts are already paying off

The pivot to podcasting holds significant potential to improve Spotify's cost structure, particularly to the extent that it can incrementally shift some engagement to exclusive podcasts that it is now producing internally. Those shows don't carry the same type of royalty burden -- Spotify's largest cost by far -- that licensed music does. The company launched 22 original podcasts in the third quarter.

Spotify posted a surprise operating profit of 54 million euros ($59.8 million) in the third quarter, which it attributed primarily to better-than-expected gross margin. "Royalty costs were more favorable than expected due to product and revenue mix," Spotify wrote in its shareholder letter. "We also had lower content expense resulting from both lower overall spend and the slower rollout of developed shows."

Podcasting hours streamed jumped 39% in the third quarter, although the company acknowledges that this growth was coming off a small base. Approximately 14% of Spotify's 248 million monthly active users (MAUs) are now listening to podcasts on the platform, and podcasts are helping drive deeper engagement, as well as conversions of free users to paid plans.

By its own admission, Spotify's podcasting strategy is still in the early innings. The company says some of the data points are "almost too good to be true," and it's working to "clean up the data to prove causality." Still, management is encouraged by the initial trends and plans to keep investing in the initiative.  

"We're going to talk to you about the scale of the podcast investment next quarter," CFO Barry McCarthy said.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Spotify Stock Quote
$238.51 (2.80%) $6.50

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/07/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.