Spotify’s share price reached into the stratosphere on Tuesday following an announcement of a new agreement with a communications giant, but the streaming platform’s stock performance might have had more to do with an approving nod from the biggest name in business news.
Starting Tuesday, Spotify became available on Comcast’s cable TV service X1, and Flex, a streaming portal that hosts apps such as Netflix and Hulu. By the numbers, the agreement — it’s not a deal and hardly a partnership — is impressive: between residential broadband and cable, Comcast has 29.5 million accounts, according to the company’s latest earnings statement.
But investors could have been more moved by the comments on Monday by Jim Cramer on his CNBC show Mad Money. Cramer sees a comparison in Spotify’s original podcast content to Netflix’s genius move nearly a decade ago to augment its licensed catalog by self-producing its own movies and series. A person had multiple options for renting a movie but had to have Netflix to binge-watch an original show like House of Cards. Now “that the market’s finally bought into their podcasting strategy — which is a great one — what matters here is subscriber growth,” he said.
That strategy to become an audio platform has resulted in exclusive deals with Joe Rogan and Kim Kardashian West and Warner Bros., as well as acquisitions of Bill Simmons’ The Ringer, Gimlet Media and Parcast. Spotify has been clear about its goal to become the world’s top audio platform. “We see a huge opportunity in front of us,” CEO Daniel Ek told the Hollywood Reporter last October. Earlier that year, Spotify earmarked $500 million for podcast acquisitions. “It’s going to be a big business.”
On Tuesday, generally an uneventful day at the stock markets, Spotify’s share price rose as high as $256.27, valuing the company at $47.7 billion, before ending the day up 2.4% for a still-impressive $45 billion valuation. The share price is up 61.7% year-to-date and up 121.4% from its COVID-19 era low on March 16.
Investor enthusiasm is music to the ears of two major labels that received Spotify shares in past licensing agreements. Universal Music Group’s unsold 3.5% of outstanding Spotify shares — it has not yet announced otherwise — were worth as much as $1.67 billion on Monday. Sony Music’s shares were worth $1.36 billon at Tuesday’s high; when Sony sold the other half of its shares in April 2018, shares traded between $141 to $169. Warner Music Group sold its Spotify shares in August 2018.
The Comcast news is important, too. The telecom company will allow users of X1 and Xfinity Flex to sign up for a free, ad-supported Spotify account within the Comcast ecosystem and without requiring them to sign up at Spotify. There is one key hitch: a Comcast customer must go off-platform to subscribe to Spotify rather than subscribe through a Comcast platform — they have the billing relationship, after all. As a result, Comcast’s new users may convert to the subscription service at a lower-than-average rate. Conversion is key to the business model: subscribers account for 57% of Spotify’s monthly average users but only 10% of its revenue.
Still, at least this week, Cramer’s praise carries more weight than easy access to nearly 30 million households. Such enthusiasm is a positive sign for Spotify and, just perhaps, the music subscription model in general. Wall Street — and now retail investors thanks to Cramer — believes podcasts and music can have a mutually beneficial relationship.