- Streaming platform eyes $100 billion revenue in next decade

- Amitious growth target implies nine-fold jump

- Would put Spotify close to Apple's enormous profits

Music streaming platform Spotify Technology (SPOT:NYSE) predicts that it could be churning out profits on a scale to match Apple within a decade as it aims for $100 billion revenues.

‘I believe our future is a lot bigger,’ chief executive Daniel Ek said in a statement on Wednesday (8 June), speaking at the company’s investor day.

Investors took the bait, with Spotify stock jumping 6% to $116.03.

Last year the company produced €2.59 billion gross profit on €9.67 billion revenue, equivalent to $2.78 billion and $10.4 billion respectively, implying massive growth over the next 10 years.

Spotify has sunk more than $1 billion into bolstering its podcasting business, which Ek said has been dragging down the company’s gross margins.

Chief financial officer Paul Vogel joined in the tub-thumping, saying that investment will soon pay off, projecting profitability for podcasts in the next year or two and ‘meaningful ramp,’ with gross margins of 30% to 35% for podcasts, over the next three to five years. In the long term, Ek said podcasts could produce gross margins of 40% to 50%.

‘This drag will not last,’ Vogel said, according to a FactSet transcript, adding that podcasting revenue jumped more than 300% in 2021. ‘We are building a massive podcast audience, which is the foundation of monetising our investments,’ the finance chief said.

RAINING PROFITS IN THE SPOTIFY FORECAST?

Ek said Spotify is still growing aggressively, aided by machine learning and technology, and mentioned audio books as another massive growth opportunity, with about $70 billion in annual revenue potential and margins above 40%.

‘From everything I see, I believe that over the next decade, we will be a company that can generate $100 billion in revenue annually, and that we can achieve a 40% gross margin and a 20% operating margin,’ Ek said.

That would imply nearly $20 billion of annual operating profit and $15.8 billion net income in 2031, or thereabouts, or €17 billion and €13 billion based on current exchange rates. Last year (to Sep 2021) Apple (AAPL:NASDAQ), one of the world’s biggest profit makers, produced $108.9 billion of operating profit on $365.8 billion revenue, implying a rough 30% margin.

Spotify financials
	2021 (million)	2031 (million)*
Revenue	€9,668 ($10,364)	$100,000
Gross margin	26.80%	40%
Operating margin	1%	20%
Operating profit	€94 ($100.8)	$20,000
Earnings	-€34 (-$36.5)	$15,800
Source: Spotify, Shares *Spotify prediction (Spotify reports in €)

Spotify shares have lost more than half their value this year as stock markets tumbled as investors turned cautious on higher risk equities, particularly those offering jam tomorrow. In April, the company announced an unexpected decline in subscribers for the first time in a decade, sending the shares plunging to their lowest since going public in 2018.

The stock has rallied 23% over the past month, however, compared to the S&P 500’s 3% gain over that period.

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