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Decoding the Spotify Puzzle: A Successful Company That Doesn’t Add Up

Decoding the Spotify Puzzle: A Successful Company That Doesn’t Add Up
Pedro Domínguez Rojas

Pedro Domínguez Rojas

Whether you are a Spotify user or not, we are sure that at some point, you have heard about this popular app. For those who don’t know it, Spotify is to music what Netflix is to series (when it doesn’t cancel them). That is, a streaming service where you can listen to thousands and thousands of songs (depending always on the region where you are located), either by paying a monthly subscription or for free, but with ads.

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Its success has been overwhelming throughout the world, so much so that in recent years it has decided to increase its catalog, including new types of audio-based products such as audiobooks and podcasts. Even so, the company does not capitalize on this success, and its shares have fallen drastically in price in recent years. What is this about?

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An investment of many zeros

The business world is based on investing and making a return on investment. Something that, although it may seem simple, hides great complexities, especially when we talk about large numbers and a turbulent socioeconomic context like the one we are experiencing after the pandemic.

In the case of Spotify, the crux of the matter is precisely in its latest big bet: podcasts. In its quest to be the number 1 podcast app in the world and not rely so heavily on paid subscription revenue, the company has invested tens of millions of dollars to hire big names like host Joe Rogan, Former US President Barack Obama or the Kardashians.

Since they began their adventures in the field of podcasts, and to this day, the value of Spotify’s shares has fallen by 70%. A problem, however, that Spotify itself downplayed in its latest results presentation: “2022 will be the peak in terms of the negative impact of our investments on gross margins, and we expect podcasting gross margin to become profitable in the next year or two and climb significantly thereafter,” he said Paul Vogel, its financial director.

Will the accounts work out?

Despite the difficulty in recovering an investment valued at 1.000 million dollars, Spotify has everything going for it. The company recorded an increase in monthly active users, exceeding 456 million in 2022. Of this total, 195 million would be users who pay for the subscription, and the rest users who enjoy the app for free, generating income for the company through the advertising they listen to.

Will Spotify’s prediction come true? Will it start to recover in 2023?

Pedro Domínguez Rojas

Pedro Domínguez Rojas

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