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Spotify optimistic about $1 billion investment in podcasts

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Yahoo Finance Live anchors discuss Spotify's comments about its podcast investment during the company's investor day.

Video Transcript

[MUSIC PLAYING]

AKIKO FUJITA: Let's do a quick check of shares of Spotify, we saw a spike this morning. A lot of that attributed to podcasts, the streaming giant out with a bullish forecast during the company's investor presentation, saying the more than $1 billion committed to podcasting will soon pay off, including gross margins of up to 35% for podcasts. Will soon payoff is the key here because it hasn't paid off yet, despite the $1 billion investment they've made in content.

BRIAN CHEUNG: Yeah. And the statistics kind of bear out that this is still very much in the early stages of their plans to really turn this into a strong revenue stream for them. They've only monetized about 14% of that business. And they have negative 50%-- sorry, negative 57% gross margin on their pods business. They say they expect that really bad number to peak in 2022. Difficult and ambitious to call a peak of anything in this environment right now but obviously, with a growing revenue stream you do wonder if they'll be able to kind of improve what they're going to see from that specific line of business, especially with you know, the amount of listeners that they have on "The Joe Rogan Experience," which controversial, but you have to acknowledge that it is a massively popular program.

AKIKO FUJITA: Well, there's a massive following but I think what happened with Joe Rogan really does point to these challenges that Spotify now has to navigate. It's one thing to be music streaming but with podcasts, you're including additional content that some may consider controversial. And with that comes Spotify having to take a stance on certain things, you know? And we saw them sort of eventually find their footing but it was a little what was the word-- ambiguous?

BRIAN CHEUNG: Yeah, I mean--

AKIKO FUJITA: In the beginning?

BRIAN CHEUNG: I think that when it comes to just the overall strategy for Spotify, they are making a big bet on owning the content. I think that's the bigger takeaway here because everyone knows that I mean, the experience of listening to a podcast is really not that dissimilar to listening to music. And you would probably want-- most people would probably want all that to be on the same platform. But what's happening here is that unlike music, where it's not-- you're not-- you don't own the music labels, I mean, maybe that's what the future of you know, the business is going to be but for right now, you can own the podcast and have exclusivity on that platform, which is exactly what they tried to do by buying for a pretty penny the podcasts that they have right now. So whether or not that pans out for them is interesting.

As far as the stock itself, it's down, 51% year-to-date, not very good. And it's down today even though you know, there was a bit of a-- you know, volatility after the news of their strategy yesterday. But you know, some of that is obviously the big macro picture with regards to all tech stocks but you do wonder about whether or not people got a little bit too excited when Spotify first got into this space, which you know, certainly helped it on the way up.

AKIKO FUJITA: Yeah, Spotify saying 30% of their users have listened to podcasts or at least [INAUDIBLE].

BRIAN CHEUNG: Are you one of those?

AKIKO FUJITA: I am. And you know what? I'm surprised at how many people have shifted over to Spotify for podcasts. And I think to your point, the key really is having it all on the same platform. I used to listen to it separately, I'd go to Apple for podcasts, that was just kind of where I first started listening to. But there is a benefit to that. And then, of course, Spotify has a lot of the discovery elements, you know, that's where you are exposed to other podcasts. I mean, it is part of that whole experience not just with music but podcasts as well. And so that market is you would think it's only going to grow but it feels increasingly saturated doesn't it? It feels like there's so many podcasts that are out there.

BRIAN CHEUNG: It does. There's a lot of stuff. But again, you would rather have more content than fewer content, right? But so to be clear, you're a Spotify over Apple Music type of person?

AKIKO FUJITA: I am a Spotify person, yeah.

BRIAN CHEUNG: OK, I'm proud to announce on the show that I have both. I have both subscriptions.

AKIKO FUJITA: Brian, is--

BRIAN CHEUNG: Why not both?

AKIKO FUJITA: --that a proud point, you've got both?

BRIAN CHEUNG: Yeah. I do.

AKIKO FUJITA: Why both?

BRIAN CHEUNG: No it's only because I have the family plan. My parents and my brother use Apple Music, and I'm the Spotify. But anyway, we have both. That does it for [INAUDIBLE].