Spotify's integration of podcasts into its streaming services could give a significant boost to its advertising revenue, according to a sunny analysis published by Guggenheim Partners. Between new listening formats, better ad targeting tools and exclusive content deals, the investment advisory firm sees a clear path for Spotify to monetize podcasts more effectively.
A research team at Guggenheim led by Michael Morris has, in fact, elevated its outlook for Spotify's advertising potential, thanks to its podcast initiatives over the last several months, according to a report in Markets Insider. In February, Spotify announced its intention to spend between $400 million and $500 million on acquisitions in the podcast space in 2019. It purchased podcast creation studio Gimlet Media for about $230 million; and Anchor, which provides tools create and distribute podcasts, for an undisclosed amount. Since, the music streamer has begun to make product changes to integrate podcasting into its service.
Guggenheim’s analysis points to Spotify's exclusive content agreements, such as a deal with former President Barack Obama, and new formats like the “Your Daily Drive” playlist, which mixes news podcasts with music, as major enhancements to its podcast offering, according to Markets Insider. Last week, Spotify also rolled out a feature to allow advertisers to target listeners based on which types of podcasts they’re tuning into.
Guggenheim notes that Spotify was the ninth-most-downloaded app during second quarter 2019—its highest quarterly ranking in more than two years, according to AppAnnie. Guggenheim’s Morris writes: “Sequential improvement in app downloads indicates new and returning user growth, a positive trend and supportive of a bullish view that the company's global addressable market is well in excess of current streaming music subscriber levels.”
The analyst is joined by SunTrust Robinson Humphrey in its rosy forecast. That firm hosted an investor meeting with members of Spotify’s management team this week and said the company’s exclusive content deals will strengthen user engagement and monetization for its podcast business, according to the Markets Insider story. “The company sees it as a content arms race and not many others are racing alongside Spotify,” Matthew Thornton, a SunTrust Robinson Humphrey analyst said.
During Spotify’s Q1 2019 earnings call, CEO Daniel Ek commented, “This is a very, very early market that we're seeing. Our view obviously is that while (listeners) are starting to flock to podcasts, there’s still tremendous growth both in the U.S. and internationally on the demand side.”