Spotify held its first Investor Day presentation since 2018 in New York today. Much optimism was seen throughout the events, nearly four hours of company talks that will crumble into bite-sized chunks over the coming days and weeks.
In his opening remarks today, Spotify co-founder and CEO Daniel Ek spoke about Spotify’s anticipated expansion into audiobooks, before teasing an outstanding presentation from Alex Norstrm, Spotify’s chief freemium business officer, which we plan to reach one billion users in the next eight years get. A while later, Norstrom took the stage and wasted no time in making this claim.
It would not be an easy task for Spotify to reach one billion users by 2030. Despite this, Spotify ended 2021 with 406 million monthly active users (MAUs) worldwide, up 61 million year-over-year. If SPOT could somehow sustain this growth rate over the following decade (+61 million per year), its platform would reach 1 billion MAUs in the second half of 2030.
One of Spotify’s strategies to reach the 1 billion MAU mark, according to Norstrm, was continued growth in established (i.e. mature) streaming markets (North America, UK and Western Europe, Australia and New Zealand). But perhaps the most important part of the plan, Norstrm says, is the potential for Spotify’s accelerated growth in emerging markets, which he dubbed Africa, Asia, Latin America (LatAm) and the Middle East for his presentation. Norstrom then explained why these emerging markets offer such promises for Spotify, a product now available in 183 markets worldwide.
According to the data shown in Norstrm’s presentation, there are currently 600 million smartphone users in the above established markets (in regions that also have access to Spotify). Spotify therefore considers these 600 million smartphone users as its Total Addressable Market (TAM) in these regions. And with 184 million SPOT users in these established markets by the end of 2021, Norstrom calculates that Spotify already counts 32% of them as customers.
In emerging markets, Norstrm explained, the potential TAM for Spotify, and therefore the potential user growth opportunity for Spotify, is much greater. Spotify’s TAM in emerging markets (reminder: Africa, Asia, LatAm and the Middle East), Norstrm said, currently has 2.7 billion smartphone users. He added that Spotify currently only achieves 8% of this emerging market TAM, i.e. H. around 216 million users. That leaves 92% of that 2.7 billion TAM audience for Spotify.
As investors’ appetites were whetted, Norstrm turned its attention specifically to Latin America and Spotify’s growth history in the market to date. At this point the MBW antenna beeped: That was brand new information.
Spotify breaks down its MAU reach for investors by global region each quarter, but only in the form of rounded percentages from which exact user numbers cannot be derived. However, Norstrom’s LatAm numbers were nice and accurate and came complete with an increase bar graph (see below) MAU over TAM [i.e. how many users Spotify has compared to smartphone users in LatAm] is 20% and the engagement is fantastic. .
But of course, when MBW sees a chart like this, we want to dig deeper. So we did. Below is what the Norstrms chart looks like, repurposed to include year-over-year growth numbers for Spotify in both LatAm MAUs and LatAm Subscribers (in millions).
Here’s what it tells us: Spotify’s YoY MAU growth in Latin America has indeed declined significantly in 2021, according to official figures. Last year, in 2020, Spotify grew 16 million LatAm MAUs; In 2019 it was 15 million MAUs. But in 2021, that number dropped to +11 million. SPOT’s decline in LatAm subscriber growth was smaller, at +5 million year-on-year, but in each of the previous three years that figure was +6 million.
Those aren’t horrific numbers for Spotify, but they’re surprising to see. Especially regarding LatAm, a music market that is growing like never before. According to IFPI data cited by Sony Music in a presentation last week, the LatAm region grew 31.2% yoy in 2021 (in terms of recorded music trade revenue), outperforming the US dollar $1.0 billion for the first time in history. And according to IFPI’s Global Music Report, that 31.2% growth in Latin America accelerated the region’s fortunes compared to the previous two years: LatAm was up 18.1% in 2020, IFPI says, and 23.2% in 2019. So, the slowdown in Spotify user growth in LatAm is not in line with the region’s revenue trend from a music perspective.
It should be said that Spotify’s subscription price increases in regions like Argentina and Brazil over the past year, both confirmed at today’s Investor Day presentation played a significant role in driving LatAm’s record revenue growth over the past year. However, if Spotify’s investor narrative is about accelerating user growth in emerging markets, why is user growth slowing down in one of the top m emerging markets in the first place?
After reporting on LatAm, Alex Norstrom’s presentation turned to India, where he claimed that in the past two years, Spotify has surpassed all competition as a music streaming provider among India’s top 5 music streaming platforms. This was enough, according to Norstrm, to leave Spotify as the clear No. 1 music streaming service in India in terms of engagement. However, Norstrm paused to tell us what Spotify’s market position in India is in actual number of users/subscribers compared to JioSaavn, Gaana etc.
About an hour after Norstrom’s presentation, which wrapped up the day’s events ahead of an investor Q&A session, Daniel Ek stood in front of a Spotify-branded screen that read, “Opportunity is massive.” Decade [Spotify] will be a $100 billion annual company. And that we can achieve 40% gross margin and 20% operating margin. These are of course very ambitious goals. As is the projected milestone of 1 billion MAUs worldwide by 2030.
The Cents Warrior – Please subscribe