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Spotify的“投资年”

On Feb. 5, Spotify (NYSE:SPOT) reported fourth-quarter results that showed its monthly active users (MAUs) grew 31% year over year to 271 million. This marked the third straight quarter of accelerating MAU growth, and company founder and CEO Daniel Ek attributed this success to the work the company did in 2018 around product enhancements, innovation, and the free ad-supported service. Management saw strong leading indicators that these investments would work, but it took until last year for them to really pay dividends.This year, the company is ramping up investments in several areas, so much so that Ek referred to 2020 as “an investment year.” So what are these big investments, and when should they pay off?One of Spotify’s biggest investments this year will be original podcast content. This is a major area of focus for the company, because this content is owned by Spotify and can be monetized through advertising. More importantly, creating one podcast episode is a fixed cost, but the content can be listened to by a theoretically unlimited audience and sell many ad spots in the process.That is a much more favorable business model than the company’s streaming music enterprise, one in which the content is controlled by major music labels. In that business, Spotify pays royalties to the music labels and publishers that amounts to a fairly high percentage of revenue. That’s a variable cost that increases in line with revenue, which makes it much harder to expand profit margins.That’s why former CFO Barry McCarthy, who had previously been CFO at Netflix, explained late last year that “streaming was to Netflix as podcasting is to Spotify.” In other words, Netflix creates streaming video content with fixed costs that can help the company generate revenue from its entire subscriber base. In the same way, the cost of a given podcast is fixed yet it can help generate revenue from every Spotify user. The potential for improved profitability in both mediums is vastly superior to the royalty-based music streaming business.Last quarter, Spotify’s sales and marketing expenses grew an astounding 69% year over year. Those expenses made up 15% of revenue during the quarter, up from just 11% of revenue in the prior-year period. What drove up those expenses was the widespread promotion of the company’s free 90-day trial.Management is willing to invest so much here, because many free trial users end up converting to paid subscribers. And those new paid subscribers generate far more value over their lifetime than the cost of the promotion. Spotify is rightly prioritizing the long-term value of the company over short-term profits. CFO Paul Vogel reaffirmed this notion during the fourth-quarter earnings call, “And when looking at LTV [lifetime value] to SAC [subscriber acquisition cost], nothing’s really changed. The numbers have been pretty consistent over the last year or two in terms of LTV-to-SAC ratio, so we feel really good about continuing to add users and valuable users.”Spotify’s average revenue per user (ARPU) declined 5% year over year last quarter, which was larger than the low-single-digit declines it had been reporting earlier in the year. ARPU has drifted lower for Spotify for a number of reasons, one of which is the mix shift toward student and family plans, both of which are cheaper on a per-user basis. Another reason is the geographic mix shift toward lower ARPU in developing countries around the world. As those countries become a larger percentage of Spotify’s subscriber base, that puts downward pressure on the metric. Finally, ARPU was knocked lower in the quarter due to broader rollout of the free 90-day trials.These ARPU declines are currently acceptable as management has prioritized user growth over pricing. Vogel elaborated during the most recent call, “At a high level, we’re still thinking about growing top of funnel. The most important thing for us is growing users and growing subscribers, and we’ll continue to stress growth over ARPU and profit in the short term.”Ek has been reluctant to predict the precise timing of when these investments will pay off, but management is seeing the same sort of positive leading indicators that suggest the company is on the right track as it builds a profitable business long-term. That’s why investors should take Spotify into consideration, even during its “investment year.”

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