Spotify (NYSE:SPOT) has ventured into the audiobook sphere, offering premium subscribers in the UK and Australia 15 hours of free monthly access to a vast library of over 150,000 titles. The move is seen as a strategic initiative to enhance user value, differentiate the company from competitors, reduce customer churn, and boost pricing power.
The new service includes 70% of The New York Times bestseller list and is expected to increase user engagement and gross margins, according to Mark Mahaney of Evercore ISI and Morgan Stanley. A high-end subscription tier aims to augment revenue, positioning Spotify against tech giants like Amazon (NASDAQ:NASDAQ:AMZN), Apple (NASDAQ:NASDAQ:AAPL), and Google (NASDAQ:GOOGL) (NASDAQ:GOOG)(NASDAQ:GOOGL).
Following the announcement on Wednesday, Spotify's shares increased by 2.5%, trading at $157.37, 1.85% higher than before. According to InvestingPro Data, Spotify's market cap stands at 31.04B USD and it has a P/E ratio of -30.32. Despite a recent downgrade from Monness, Crespi, Hardt & Co., Spotify's shares have surged by 93% year-to-date. This aligns with one of the InvestingPro Tips which highlights a high return over the last year for Spotify.
Analyst Benjamin Swinburne from Morgan Stanley maintains an Overweight rating on Spotify's shares with a $185 price target. He believes that leveraging its global streaming leadership and a user base of over 500 million monthly active users (MAUs), Spotify is poised to impact the $5 billion audiobook market within the larger $140 billion global book market.
Benchmark’s Mark Zgutowicz sees this move as a progression towards a fully-loaded subscription offering with Netflix-like annual pricing increases. This diversification strategy follows Spotify's podcasting venture in 2020. However, it's worth noting that according to InvestingPro Tips, the company's revenue growth has been slowing down recently, and it's not expected to be profitable this year.
The impact on Spotify's 2023 gross margin due to the introduction of this service was already incorporated into its guidance for this year and long-term plans. The company also plans to extend this feature to Family and Duo plan managers with purchasable 10-hour top-ups, and to future U.S. users. InvestingPro's data shows that the company's gross profit margin stands at 25.26%, and its revenue for the last twelve months was 13554.12M USD.
For more detailed insights and tips on Spotify and other companies, consider checking out InvestingPro. This service provides real-time metrics and valuable tips, with 11 additional tips available for Spotify alone.
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