[$SPOT] Exceptional Purchase Retention of Spotify and Its new Podcast Strategy

Spotify has drawn huge attention since its release of the third-quarter financial report with flying numbers and seen its stock price rallying by 19% during the day.

The monthly active users grew to 248 million by 30 %, and subscribers increased by 31% to 113 million. Podcast hours increased 39% and 14% of all monthly active users listen to podcasts on the streaming service. The company reported a revenue of 1.73 billion EUR(+28%) and a gross profit of 441 million EUR(+29%). 

Given the company’s history of hurdling around the edge of loss, the outcome of the third quarter is sure to be a happy surprise——the result outperformed everyone’s expectations, including the company itself.  

According to Measurable AI, Spotify’s monthly retention rate is pretty stable in the past Q3, which is around 80%. In the long term, its quarterly purchase retention is also very high. On average, 72% of its subscribers remain three months after subscribing from 2018 Q3 to 2019 Q3.

Compared to other players in the music streaming industry, Spotify for now is still the best in customer retention. As Measurable AI’s data dashboard shows, Amazon Music owns the lowest retention. Less than 30% of the users are still paying for the service three months later.

In the US domestic market, Pandora’s user base number is now only one quarter to the size of its Swedish rival. However, the two platforms share a similar high retention rate in the US, with Spotify owning a slightly higher rate this year as of Oct 1.

It’s hard to imagine that such a leader in the streaming music industry with over 100 million paying users had barely made profits despite its monthly subscription fee is much higher than Pandora and Amazon Music. 

Measurable AI’s data shows that the most purchased item from Pandora users is the Pandora Plus which is priced at $4.99. While the top 3 items on Spotify cost so much higher as $12.99 and $7.99. Compared to Amazon Music’s monthly fee of $10.99 and Apple Music’s $9.99, Spotify currently offers the most expensive streaming music service for its paying users.

The music industry has a large base of audiences with increasingly various demands and the streaming business has transited from a transaction-based model to an access-based model. Several major players are partitioning the market, including Spotify, Apple Music, Pandora, Amazon Music and so on.

Spotify’s revenue mostly comes from two parts, advertisement support which accounts for about 10% of the total revenue and the 90% contributor——premium subscribers. But the gross margin of 11%-20% is relatively thin compared to 30%-40% for video streaming platforms like Netflix, mainly due to the high content cost. With so many competitors on the market, Spotify needs to figure ways to better transform its large pool of users to profits. 

Hopefully, the company seems to have found the correct path——podcast. It has poured 400-500 million EUR into acquiring podcast companies like Gimlet, Parcast, and Anchor this year. The new function has extended the content of what people are interested in hearing besides music and has been given hope to attract more paying users. 

So far, the strategy has worked surprisingly well and as mentioned by the management, investment in podcasts is a strong explanation for the added subscribers. However, the company is still working on the data to prove causality, not just correlation. The optimistic intuition led to the company’s CFO saying that “Streaming was to Netflix as podcasting is to Spotify”.

About Measurable AI

Measurable AI is your data powerhouse that provides accurate, real-time and actionable consumer insights. By scanning and identifying billions of actual online spender’s email receipts, Measurable AI transforms them into valuable consumer insights, which updates daily right after the purchases happen.

Matilda Wang is a blog writer with background in finance and e-commerce industries. She loves to explore the market insights with data-driven stories with the help of Measurabale AI’ real-time alternative data.