Spotify surges 12% on the release of Wrapped — the annual event that showcases your basic music tastes – The Average Joe


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    Spotify surges 12% on the release of Wrapped — the annual event that showcases your basic music tastes


    December 8, 2020

    It happens each year… Spotify’s stock moves up at the expense of our embarrassment.

    Spotify Wrapped, the annual event that shows your most played artists and songs of the year, was released on Friday Dec. 4. And we’d be lying if Ariana Grande didn’t make our Top 5. Spotify’s stock surged over 12% to an all-time high after the release.

    Up against the Big 3

    Nearly 75% of Spotify’s revenue is paid out yearly in licensing and royalty fees with a large portion going to the 3 big music labels — Sony, Warner and Universal.

    Spotify tried to move past the record labels by allowing artists to upload music directly on its app — but the labels weren’t happy about it so Spotify shut the program down after a year of testing.

    While failing to circumvent big record labels, Spotify still has its eyes set on the fast-growing podcast business — which is expected to become a $41.8b market by 2026.

    The Spotify Experience

    Spotify is taking a Netflix business approach of producing original podcast content to differentiate itself from competitors — while reducing the amount paid out as licensing fees.

    It’s also betting that by bringing creators exclusively to Spotify, it’ll incentive users to switch over from competing products (e.g. Apple Music, Amazon music).

    Over the past 2 years, the company began acquiring podcast creators and launching exclusive podcast deals:

    • Spent over $800m for podcast content and creator tools including Gimlet Media, the Ringer, Anchor and Microphone — providing more tools for podcast creators.
    • Exclusive podcasting deals with creators like Michelle Obama, Kim Kardashian and $100m licensing deal to bring Joe Rogan’s podcast exclusively onto Spotify.

    Joe Rogan quickly became Spotify’s top podcaster as revealed on Spotify’s Wrapped. But topping the chart isn’t enough — Joe Rogan’s podcast will  need to attract new Spotify subscribers to be considered a success…

    For investors… Spotify as a casualty

    In 2018, Apple Music overtook Spotify as the largest music streaming service in North America. While Spotify is still the largest streaming service globally, its competitors are slowly catching up:

    • Incoming podcast competition from Amazon, who’s plotting a $300m acquisition of podcast network, Wondery.
    • Sales growth has steadily declined over the past year — growing just 13% and 14% in its recent quarters, compared to over 20% in previous quarters.

    Bloomberg suggested that positive vaccine news could be good for Spotify as consumers return to their daily commutes. However, if podcasting fails to increase subscriber growth and growth doesn’t return post-COVID, Spotify’s stock could be in for some trouble.

    Learn more: How the podcasting industry went from 0-100, real quick

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