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Will This Spotify Acquisition Strengthen Ad Revenue?

By Jason Hall – Jul 2, 2022 at 8:00AM

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Adding new content can help drive growth.

Recently, Spotify (SPOT -0.62%) expanded its offerings by acquiring audiobooks firm Findaway. In this video clip from "The M&A Show" on Motley Fool Live, recorded on June 17, contributor Jason Hall looks at the deal and how it could give a big boost to Spotify's ad revenue business.

Jason Hall: I think you're going to see more acquisitions from Spotify like this, that's what I really think. Because what you said at the beginning, they want to own your ears.

The starting point is a zero-leverage business for these guys because, at the end of the day, the ones that have the leverage are the Universal Music Groups (UMG -2.72%) and the Capitol Records, and the ones that own the content of the licensing rights to the music. There's four that control 80% of the world's music. You can't say no to one of them because you've just lost 20% of the music out there, and you're going to lose 100% of your audience.

The move into podcasting makes so much sense, it's a more profitable business, people listen to certain podcasts. We won't even talk about any of the specifics that they have there, but people will subscribe for that thing, the same way that SiriusXM (SIRI -1.21%) with Howard Stern paid him a massive amount of money to get people to pay for the entire monthly amount for SiriusXM Radio, even if they were only getting Howard Stern.

The podcast model, you can incrementally build that, and then you can participate in ad revenues and other little things that you can do there that I think are really smart. Audiobooks is the next step, and Findaway does a lot of things, but I know audiobooks is a big part of that. The fact that they didn't disclose it, it means it's a small deal.

This is a privately held little start-up, but you're going to see more of this because they need to continue expanding because you want optionality, and you want to be the app that people open for whatever it is. Right now it's Amazon (AMZN -1.57%). Amazon's pretty dominant in books with Audible, so makes sense.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jason Hall has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Spotify Technology, and Universal Music Group N.V. The Motley Fool recommends Sirius XM Holdings Inc. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Spotify Stock Quote
$86.30 (-0.62%) $0.54
Sirius XM Holdings Inc. Stock Quote
Sirius XM Holdings Inc.
$5.71 (-1.21%) $0.07, Inc. Stock Quote, Inc.
$113.00 (-1.57%) $-1.80
Universal Music Group N.V. Stock Quote
Universal Music Group N.V.
$18.80 (-2.72%) $0.53

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