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Why Spotify’s share price popped on Joe Rogan deal

Music streaming platform Spotify [SPOT] is hoping that by signing podcast big-shot Joe Rogan, it can herald a new era for audio media and further boost its share price.

His was the podcast on which Tesla founder Elon Musk smoked cannabis, whistleblower Edward Snowden revealed he had searched for aliens and ex-boxing champion Mike Tyson confessed to having never tasted coffee despite his other adventures with stimulants. Now the Joe Rogan Experience is coming to Spotify [SPOT] after the Swedish streaming service co-founded and now led by CEO Daniel Ek (pictured), sealed an exclusive multi-year deal worth around $100m on May 19 for new show and its 11-year back catalogue — driving up its share price in the process.

The share price, already climbing from a mid-March nadir of $117.64, closed up 8.4% on 19 May when it announced the deal before rising a further 10% to a peak of $192.74. Spotify’s share price currently sits at $185.25.

 

 

The Joe Rogan effect

Comedian and MMA commentator Rogan’s show attracts 190 million downloads a month with episodes, and he also receives millions of additional views on YouTube. His infamous interview with Musk has amassed more than 34 million views since it was aired in 2018.

The show will make its debut on the Spotify platform in September and become exclusive to the site later this year.

“This substantially raises Spotify’s global podcast brand,” said Rosenblatt analyst Mark Zgutowicz. “We believe Spotify has been trying to lure Rogan to an exclusive deal since at least 2018.”

“We believe Spotify has been trying to lure Rogan to an exclusive deal since at least 2018” - Rosenblatt analyst Mark Zgutowicz

 

He estimated that the deal could ramp up Spotify’s revenues in 2021 by between 0.5% and 3.8%.

“This is undoubtedly a coup for Spotify to get such a big show on an exclusive basis, and is a big stamp on the size of the platform and potentially its emerging ad tech,” added Wells Fargo analyst Steven Cahall.

The Rogan purchase is in addition to the near-$200m deal Spotify signed with US podcast focussed sports broadcaster The Ringer back in February as well as its acquisitions of Gimlet Media, Anchor FM and Parcast.

According to analysts, Spotify’s overarching strategy is to amalgamate the scattered podcasting world into a single content platform where listeners can more easily find their favourite shows and advertisers can sell to them.

It also hopes that its existing 286 million monthly subscribers will hoover up more podcast content.

286million

Spotify's monthly subscribers

  

“Once Spotify has gatekeeping power over distribution and a large ad targeting business, it will also be able to control who can monetise podcasts because advertisers will increasingly just want to hit specific audience members as opposed to advertise on specific shows,” Matt Stoller, author of Goliath, a history of monopolies, wrote in his newsletter.

The market appears to be happy with the news, with Spotify’s share price climbing 8.4% on the day the Rogan deal was announced. Its share price has risen from $122 in early June last year to $177 as of 28 May.

In April, Spotify said first-quarter revenues had climbed 22% to €1.8bn, mostly from paid subscriptions as people in COVID-19 lockdowns turned to podcasts and music streaming to keep them entertained. Indeed, premium subscribers rose 31% from a year earlier to 130 million, ahead of the company’s own forecasts. Advertising revenues fell below guidance, however, due to the pandemic disruption.

Analysts expect revenue growth of 18.3% year on year in the second quarter and 19.6% in 2020. They forecast a loss of €0.29 per share in the second quarter and €1.21 per share for 2020, according to Market Realist.

 

Market Cap$34.371bn
EPS (TTM)-7.63
Return on Equity (TTM)-1.92%
Quarterly Revenue Growth (YoY)22.30%

Spotify share price vitals, Yahoo Finance, 3 June 2020

 

Filling the airwaves

It is not a one-way street for Spotify however as it faces intense competition in the podcast space from Apple which, Bloomberg reports, has been ramping up its own buying of shows. Amazon is also said to be eyeing up investing in localised podcast content mainly around sport as a tie-in to its live video coverage, according to Axios.

There are also questions over how many of Rogan’s fans will follow him over to Spotify, as some might consider this shift as selling out. Conversely, some question if its sometimes controversial guests might land with a wider audience.

The overall view on Spotify remains positive, with 28 analysts giving it an outperform consensus on Market Screener.

Arne Alsin writing in Forbes goes further — much further — declaring that Spotify should be a $500 stock and the Google of audio media.

“I believe Spotify is in the early stages of building the infrastructure to redefine the economics of the streaming audio industry from scratch. Its end markets are vast,” Alsin writes.

“I believe Spotify is in the early stages of building the infrastructure to redefine the economics of the streaming audio industry from scratch. Its end markets are vast” - Arne Alsin

 

“If they are successful, and I believe they will be, Spotify could enjoy Google-like control over a still-nascent form of audio advertising… Meanwhile, as Spotify’s audio library expands into new categories, especially podcasts, I expect a significant acceleration of conversion into paid subscribers.”

That will be music to the ears for Spotify shareholders.

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