Spotify is launching a messaging feature for its free and premium subscribers.By completing this form, you agree to receive marketing communications from PYMNTS and to the sharing of your information with our sponsor, if applicable, in accordance with our Privacy Policy and Terms and Conditions .Complete the form to unlock this article and enjoy unlimited free access to all PYMNTS content — no additional logins required.“Whether you’re sharing a new audiobook with a friend for book club, bonding over your n ...

Core Insights - Spotify Technology S.A. (SPOT) shares have increased by 105.9% over the past year, outperforming its industry growth of 44.9% and the Zacks S&P 500 Composite's rise of 18.3% [1] - The stock has significantly outperformed competitors Apple (AAPL) and Amazon (AMZN), which saw gains of 2.6% and 30% respectively [1] User Engagement - Spotify's monthly active users (MAUs) reached 696 million in Q2 2025, marking an 11% year-over-year increase, while premium subscribers grew by 12% [5] - Management anticipates an increase of 14 million MAUs and 5 million premium subscribers in Q3 2025, indicating strong user retention and appeal [6] Ad Monetization Challenges - Spotify faces challenges in enhancing ad monetization, which CEO Daniel Ek attributes to execution issues rather than strategic problems [7] - Changes in the Partner Program model have reduced available ad inventory, negatively impacting short-term ad revenues [8] - Recent leadership changes, including the exit of the global head of advertising sales, reflect management's dissatisfaction with progress in monetization [9] Competitive Landscape - Spotify leads the U.S. market with a 36% share of the paid audience, while Apple Music and Amazon Music hold 30.7% and 23.8% respectively, indicating significant competition [11] - Despite superior recommendation algorithms, Spotify must contend with Apple Music's lossless audio and Amazon Music's Prime Subscription offerings [12] Valuation Concerns - SPOT is currently priced at 72.39 times forward 12-month earnings per share, significantly higher than the industry average of 24.65 times [13] - The trailing 12-month EV-to-EBITDA ratio for Spotify is 61.82 times, compared to the industry's average of 35.95 times, raising valuation concerns [13] Earnings Outlook - The Zacks Consensus Estimate for earnings per share is $5.73, reflecting a 3.7% decline from the previous year, with a lack of upward revisions from analysts [16] - Seven estimates for 2025 have been downgraded in the past 30 and 60 days, indicating declining analyst confidence [16] Dividend Policy - Spotify does not pay dividends and has no plans to do so in the future, which may deter income-seeking investors [17] Investment Recommendations - Despite significant growth in MAUs and premium subscribers, challenges in ad monetization and increasing competition suggest caution for long-term investors [18] - High valuation and weak earnings prospects further complicate the investment landscape, leading to recommendations for current investors to consider selling [19]

Core Insights - Amazon is restructuring its Wondery podcast studio due to a shift in podcast consumption towards video and personality-driven content [1][2] - Approximately 110 employees, including Wondery's CEO Jen Sargent, are being laid off as part of this reorganization [1][11] - The podcasting landscape has evolved, with a notable increase in video-forward, creator-led content, necessitating distinct strategies for audience engagement and monetization [5][6] Organizational Changes - Wondery's narrative podcast team will be integrated into Amazon's audiobook division, Audible, focusing on audio-led storytelling [3][8] - The creator-led content team from Wondery will join the Talent Services team, forming a new organization called Creator Services [9] - A new team will be established to enhance advertising and sponsorship opportunities across Wondery and Amazon Music, led by Angie More [10] Performance and Future Direction - Wondery has produced award-winning podcasts and has seen podcast revenue grow by more than 4 times since joining Amazon [4][11] - The restructuring aims to better support creators in monetizing their content and simplify the advertising process [4][6] - The changes are expected to enhance the overall experience for creators, customers, and advertisers, aligning with strategic opportunities in the evolving podcast market [6][12]

Core Insights - Spotify Technology S.A. is set to report its second-quarter 2025 results on July 29, with revenue expectations of $4.9 million, reflecting a year-over-year growth of 20.3% and earnings per share (EPS) estimated at $2.19, indicating a 53.2% increase from the previous year [1][8] Financial Performance - The consensus estimate for total monthly active users (MAU) is projected at 736.8 million, representing a 50.7% increase year-over-year. Premium subscribers are expected to reach 288.5 million, indicating a 40.7% growth, while ad-supported MAUs are estimated at 465 million, suggesting a 57.6% rise [5][8] - Spotify's stock has increased by 100.4% over the past year, outperforming the industry average of 50.8% and the S&P 500's 16.5% rise [6][8] Earnings Expectations - The current Earnings ESP for Spotify is -9.14%, with a Zacks Rank of 3 (Hold), indicating lower chances of an earnings beat this quarter [4][8] - Historical performance shows that Spotify has missed the Zacks Consensus Estimate in three out of the last four quarters, with an average negative surprise of 7.4% [2][3] Growth Drivers - The growth in MAUs has been attributed to AI-led innovations, with a 16.9% increase in MAUs from Q1 to Q4 of 2023 and a 10% growth year-over-year by the end of Q4 2024 [12][13] - The company aims to reach a billion users globally by 2030, supported by its ability to diversify geographically [13] Competitive Landscape - Spotify faces significant competition from Apple Music and Amazon Music, which may impact its market share despite its superior recommendation algorithms [14] - The competitive nature of the audio streaming industry poses challenges to Spotify's growth potential [16]

Core Insights - Spotify Technology S.A. (SPOT) shares have increased by 141% over the past year, significantly outperforming the industry average of 43.3% and the Zacks S&P 500 Composite's 12.1% rise [1] Group 1: Growth and Innovations - Spotify has introduced AI-driven features such as AI DJ and AI Playlist, leading to increased customer engagement [5] - The company reported a 16.9% growth in monthly active users (MAU) in Q4 2023 compared to Q1 2023, with a 10% rise by the end of Q4 2024 and an addition of 3 million MAUs in Q1 2025 [6] - The AI Playlist feature has expanded into over 40 new markets, contributing to a 4% year-over-year revenue per user growth in the latest quarter [7] - Spotify is now accepting audiobooks from ElevenLabs, allowing authors to narrate in 29 languages, which will enhance its position in the global audio streaming market [8] Group 2: Financial Outlook - The Zacks Consensus Estimate for Spotify's 2025 revenues is $20.5 billion, indicating a year-over-year increase of 20.7%, with a projected 14.2% rise in 2026 [10] - The consensus estimate for earnings per share is $9.15 for 2025, reflecting a 53.8% year-over-year increase, and a 45.3% growth is anticipated for 2026 [10] - Spotify's current ratio in Q1 2025 is 1.48, showing improvement from 1.42 in the previous year, although it still lags behind the industry average of 2.34 [11] Group 3: Valuation and Profitability Concerns - Spotify's forward 12-month price-to-earnings ratio is 62.5X, exceeding the industry average of 40.15X, indicating potential overvaluation [13] - The trailing 12-month EV-to-EBITDA ratio is 70.13X, significantly higher than the industry's average of 14.94X [13] - The company's return on equity (ROE) stands at 22.5%, below the industry average of 32.5%, and has declined by 260 basis points from the previous quarter [16] Group 4: Competitive Landscape - Spotify holds a 36% share of the paid audience in the U.S. as of 2024, while Apple Music and Amazon Music hold 30.7% and 23.8%, respectively, indicating a highly competitive market [18] - The company faces challenges from competitors like Apple Music's lossless audio and Amazon Music's Prime Subscription, which could impact its market position [19] Group 5: Investment Recommendation - The incorporation of AI in Spotify's offerings has enhanced customer growth, and partnerships like that with ElevenLabs support global expansion [20] - Despite promising financial outlooks and a strong liquidity position, the stock's high valuation and lagging profitability raise concerns [21] - Given the competitive landscape and valuation issues, it is suggested that investors hold their positions for now, awaiting a more favorable entry point [22]

Summary of Key Points from the Conference Call Industry Overview - The online music service industry has experienced significant growth over the past 20 years, characterized by streaming and globalization. According to IFPI, the global recorded music industry revenue is projected to reach approximately $30 billion in 2024, with a year-on-year growth of 5%. Streaming revenue accounts for nearly 70% of this total, with paid subscription revenue expected to reach $15.1 billion, growing by 9.5% year-on-year. Advertising revenue is anticipated to grow by 1.2% [2][3]. Key Characteristics of the Online Music Service Industry - The industry has high entry barriers due to high content copyright costs and strong two-sided network effects. High copyright costs make it difficult for new entrants to compete effectively in the short term. The market is dominated by major record labels, which control a significant portion of the content [3][4]. - The upstream of the industry is primarily controlled by record companies, which manage a large number of tracks. The downstream monetization relies on the user base of platforms, generating revenue through subscriptions and advertising. The three major music groups in the U.S. control 85% of the track count and 74% of the global digital music upstream [5][6]. Competitive Landscape - In the overseas market, platforms like Spotify, Apple Music, and Amazon Music dominate, with market shares of 36%, 31%, and 24% respectively. However, their profitability is affected by the monopoly of upstream record companies. In contrast, in the Chinese market, Tencent Music and NetEase Cloud Music hold the majority market share, approximately 70-80% combined, while the emerging platform, Soda Music, poses limited threat due to its recent establishment and lack of quality content [6][7][8]. Trends in the Domestic Online Music Market - The main trends in the domestic online music market focus on increasing the number of paid users and raising the average revenue per user (ARPU). Tencent Music's monthly active users are nearing their peak, with future growth relying on paid user numbers and pricing. NetEase Cloud Music and Soda Music are currently in the phase of expanding their user base [9][10]. - The domestic market has seen significant regulatory changes, such as the strict copyright regulations in 2015 and the administrative penalties against Tencent in 2021, which have allowed competitors like NetEase Cloud Music to accumulate more tracks [10]. Profit Growth Strategies - Online music platforms are achieving profit growth by optimizing content costs, expanding user bases, and increasing subscription revenues. The market is valuing internet companies highly due to their stable business models and favorable competitive landscapes. Tencent Music and NetEase Cloud Music have room for long-term profit margin improvements [11][12]. Valuation and Market Sentiment - The online music sector has seen significant stock price increases this year, driven by favorable policies, market regulatory guidance, and content cost optimization. Despite low double-digit revenue growth, investor confidence remains high due to these factors [13][14]. - In 2025, internet companies are receiving high valuations due to their stable business models and competitive environments. Tencent Music and NetEase Cloud Music are particularly well-positioned, with Tencent Music's non-GAAP P/E ratio around 26-27 times and NetEase Cloud Music's around 31-32 times [15][16]. Future Development Potential - Both Tencent Music and NetEase Cloud Music have significant growth potential, with opportunities to double their paid user bases. They are also actively expanding into long audio, artist management, and fan operations [16][17]. - Tencent Music has made strategic investments, including a $1.26 billion cash acquisition of Himalaya and a stake in South Korea's SM Entertainment, indicating its intent to strengthen its position in the long audio content and fan economy sectors [20]. Notable Developments in NetEase Cloud Music - NetEase Cloud Music is enhancing its social attributes and UGC ecosystem, showing considerable potential for profit improvement. The platform has a high proportion of users born after the 90s, and its recent features, such as "Music Notes," are expected to enhance its financial performance [21].

Core Insights - The rise of AI musicians is significantly disrupting the traditional music industry, with AI-generated artists like Aventhis and The Devil Inside gaining substantial popularity on streaming platforms [2][3][7] - AI-generated music is characterized by high production efficiency, allowing AI artists to release multiple tracks in a short time, which contrasts sharply with the slower output of human musicians [7][8] Industry Impact - AI musicians are rapidly capturing market share, with Aventhis releasing three albums and 57 tracks in just four months, showcasing a production speed that human artists struggle to match [7] - The emergence of AI-generated content is leading to a chaotic landscape in the music industry, raising questions about copyright and legal implications [11][12] Streaming Platforms - Deezer has taken the initiative to label AI-generated content, while other platforms like Spotify, Apple Music, and Amazon Music have remained silent on the issue [12] - Over 20,000 AI-generated tracks are uploaded daily on Deezer, with AI-produced audio accounting for 18% of total uploads in April [6] Legal and Copyright Issues - The legality of AI-generated music is under scrutiny, with companies like Suno and Udio facing lawsuits for allegedly using copyrighted songs without authorization [11] - The U.S. Copyright Office has stated that AI-generated works do not hold copyright unless there is sufficient human input, leading to uncertainty regarding ownership and rights [12]

User Growth and Engagement - Spotify's total monthly active users (MAUs) grew 10% year over year to 678 million in Q1 2025, indicating strong global appeal and user acquisition capabilities [1][9] - Premium subscribers increased by 12% from the previous year to 268 million, reflecting an improved conversion rate from free to paid users, which is crucial for financial stability [2][9] - The growth in users is primarily driven by strategic focus on emerging markets, particularly in Latin America and the Rest of World, showcasing effective localization efforts [3][9] Strategic Initiatives - Spotify aims to reach one billion users globally by 2030, leveraging geographic diversification and competition against major players like Apple and Amazon [4] - The company is utilizing AI technologies, such as Spotify Wrapped and AI DJ, to enhance user engagement and retention, which helps in converting free users to premium subscribers [5][9] Management Outlook - Management is optimistic about user growth, projecting an increase of 11 million MAUs and 5 million premium subscribers in Q2 2025, indicating confidence in ongoing user attraction and retention strategies [6] Financial Performance - Spotify's stock has increased by 56.7% year-to-date, outperforming the industry average of 12.7% and the S&P 500's 1.5% rise, reflecting strong market performance [7] - The forward price-to-earnings ratio for Spotify is 60.91, which is above the industry average of 39.53, indicating a premium valuation [11]

Investment Rating - The report initiates coverage with a "Strong Buy" rating for Tencent Music [1][7]. Core Insights - Tencent Music, backed by Tencent, has a solid content copyright advantage and is leveraging innovative technologies like AIGC to enhance member benefits, which is expected to further increase the paid user rate and ARPU [1][7]. - The company is projected to achieve revenue growth from 310 billion to 376 billion CNY from 2025 to 2027, with adjusted net profits expected to rise from 89 billion to 110 billion CNY during the same period [7][8]. Company Overview - Tencent Music Entertainment Group was established in 2016 through the merger of Tencent and China Music Corporation (CMC), which had long-term agency agreements with nearly 100 record companies, holding a vast library of over 20 million licensed songs [7][13]. - The company has built a strong content barrier by integrating QQ Music and CMC, covering most core copyright resources and maintaining deep collaborations with major labels [7][13]. Core Business - The core business is divided into online music services and social entertainment services, with online music becoming the main growth driver, accounting for over 54% of total revenue in 2024 [7][24]. - Online music service revenue is expected to reach 217.4 billion CNY in 2024, with a year-on-year growth of 25.5%, driven by an increase in paid users and average revenue per user (ARPU) [24][30]. Industry Analysis - Tencent Music is positioned as a leader in the online music market, holding approximately 70% market share, and is compared to global leaders like Spotify and Apple Music, with significant room for growth in paid user rates [7][49]. - The report highlights the increasing maturity of domestic users' willingness to pay, which, combined with diversified member benefits, is expected to drive further growth in paid user rates and ARPU [7][62]. Financial Projections - The report forecasts total revenue for Tencent Music to reach 30,957 million CNY in 2025, with a year-on-year growth of 9%, and adjusted net profit to reach 8,897 million CNY, reflecting a 16% increase [8][24]. - The PE ratio is projected to decrease from 22.8 in 2025 to 18.4 by 2027, indicating a favorable valuation trend [8][24].

Core Viewpoint - The global recorded music market reached a milestone in 2024, with total revenue soaring to $29.6 billion, driven significantly by streaming, which surpassed $20 billion for the first time. However, the rise of AI technology has led to an increase in streaming fraud, making it a target for criminals [1]. Group 1: AI-Generated Music Fraud Case - A notable case involved a 52-year-old man from North Carolina, Michael Smith, who was charged with using AI to create fake songs and fraudulently distribute them on platforms like Amazon Music, Apple Music, Spotify, and YouTube Music to illegally obtain royalties totaling over $10 million [3][4]. - Smith's fraudulent activities began in 2017, where he created thousands of automated accounts to continuously play AI-generated songs, resulting in billions of plays and substantial royalty income [4][5]. - The indictment revealed that Smith purchased hundreds of thousands of AI-generated songs and manipulated streaming data to create the illusion of global listening [5][6]. Group 2: Impact of AI on Streaming Fraud - The use of AI in music generation has allowed fraudsters to upload millions of fake songs to streaming platforms, with individual songs receiving only a few thousand plays, making it harder for platforms to detect fraud [8][9]. - Deezer reported that 18% of the content uploaded to its platform is generated by AI, highlighting the scale of the issue [9]. - The International Federation of the Phonographic Industry (IFPI) noted that AI is a significant driver of streaming fraud, enabling criminals to evade regulation while achieving profitability [10][11]. Group 3: Legal and Industry Responses - Legal actions have been taken against individuals involved in music streaming fraud, with a notable case in Denmark resulting in a prison sentence for a man who earned approximately 2 million Danish Kroner (about $229,676) through similar fraudulent activities [12][13]. - Despite efforts by platforms like Deezer to combat AI-generated music fraud, the effectiveness of these measures remains questionable, as the problem continues to escalate [15][16]. - There is currently a lack of legal frameworks governing the distribution of AI-generated music, complicating the enforcement of copyright protections [17].