Spotify (NYSE: SPOT) disrupted the podcast and audio world by signing Joe Rogan to an exclusive deal.
Spotify will become the exclusive distributor of the Joe Rogan Experience under the deal. The deal’s value is unclear, but The Guardian claims it could make Rogan the world’s highest paid broadcaster. However, Yahoo Sports! estimates the deal could be worth over $100 million.
It is easy to see why Spotify wants Rogan. Listeners downloaded the Joe Rogan Experience podcast over 200 million times a month in September 2019, Andrew Wilkinson estimates on Medium.
Why Spotify Wants Joe Rogan
Additionally, Rogan’s YouTube channel had over six million subscribers. Impressively, Wilkinson estimates Rogan had 11 million listeners in 2020.
Moreover, Wilkinson claims Rogan could make between $64 million and $240 million a year from advertising. However, Rogan could give some advertising away for equity in some companies.
Consequently, Wilkinson thinks Rogan could become the first podcast billionaire. Predictably, Spotify wants a piece of Rogan’s business. Rogan could own of the most lucrative brands in audio.
Is Spotify a Good Stock?
Joe Rogan is good for Spotify Technology SA (NYSE: SPOT) stock. Mr. Market paid $158.83 on 15 May 2020 before they announced the Rogan deal on 19 May 2020.
In contrast, Mr. Market paid $185.95 for Spotify on May 27, 2020 and $182.71 on 1 June 2020. Thus, Mr. Market and investors are Joe Rogan fans.
Moreover, Spofity has had an excellent year in the markets. Spotify started 2020 at $151.62 on 2 January 2020 but rose to $192.74 on 21 May 2020 and fell to $185.95 on 27 May 2020. Conversely, Spotify fell to a $118.18 low on 23 March 2020.
Therefore, Spotify is a stock that keeps its value. However, Spotify is an entertainment company that heavily relies on star power. Thus, superstars such as Rogan can siphon off a sizeable portion of Spotify’s profits and revenues in the form of big paydays. Hence, Rogan and his agent get any money Spotify makes.
Is Spotify Making Money?
Spotify (NYSE: SPOT) could be on the verge of making money. In particular, Spotify reported an operating loss of -$18.75 for the quarter ending on 31 March 2020.
Conversely, Spotify reported making a $520.71 million gross profit on revenues of $2,038.71 billion for the same quarter. Interestingly, Spotify’s revenues and gross profit fell in the first three months of 2020. Spotify reported quarterly revenues of $2.061 billion and a quarterly gross profit of $526.78 million on 31 December 2019.
On paper, you can claim Spotify makes a little money because it reported a quarterly common income of $1.1 million on 31 March 200. That number grew from -$229.6 million on 31 December 2019 and -$161.28 million on 31 March 2020.
How Much Cash is Spotify Generating?
Spotify’s platform can generate cash. In fact, Spotify reported an ending cash flow of $1.049 billion for the quarter ending on 31 March 2020.
Spotify’s quarterly cash flow grew from $217.58 million on 31 December 2019. Furthermore, Spotify’s quarterly cash flow fell from $1.097.18 billion on 31 March 2019.
However, Spotify reported a negative operating cash flow of -$9.93 million on 31 March 2020. That number was down from $230.32 million 31 December 2019 and $237.38 million on 31 March 2019.
I think Spofity’s operating cash flow number explains the Joe Rogan deal. Spotify needs proven moneymakers; such as Rogan, because its platform loses money. Therefore, hiring Rogan is a smart and responsible move for Spotify.
Moreover, Spotify reported a financing cash flow of $84.95 million for the quarter ending on 31 March 2020. The financing cash flow fell from $119.58 million 31 March 2020. I think the financing cash flow shows Spotify is borrowing money to pay for operations.
Finally, Spotify had $1.858 billion in cash and short-term investments on 31 March 2020. Hence, Spotify generates some cash, but I think there is no evidence that Spotify’s cash flow is sustainable.
What Value Does Spotify Have?
I think Spotify (NYSE: SPOT) could have a lot of value because of its impressive platform.
That platform had 248 million active users and 141 million ad-supported active users on 30 September 2019, Spotify claims. To clarify, the 141 million advertising supported users do not pay for Spotify Premium. Thus, I estimate Spotify Premium had 107 million users on 30 September 2019.
Spotify claims its library contains over three billion playlists, 50 million songs, and 500,000 podcast titles. Thus Spotify owns enormous amounts of audio content it could monetize.
How Spotify could make money
However, I suspect most of that content is worth little or nothing. On the other hand, if each of those 50 million songs generates 1₵ a day. I calculate Spotify could make $500,000 a day or $3.5 million a week. That could lead to $14 million a month.
Ultimately, I estimate Spotify’s platform could generate $182.5 million a year if each song generates 1₵.
Obviously, many of those songs could generate far over 1₵ a day. Thus, I think Spotify could make several billion dollars a year from songs alone.
Who will Spotify hire next?
The potential revenue from songs and podcasts explains why Spotify is hiring stars such as Joe Rogan.
To elaborate, Rogan is a proven audio-content moneymaker. As I noted above, Rogan could have 11 million listeners a month.
Thus, Spotify’s logical next move is to hire more audio-content creators who with proven moneymaking capabilities. Two of the biggest audio-content creators out there are Rush Limbaugh and Howard Stern.
The Rush Limbaugh Show attracted over 25 million radio listeners each month in 2018, Forbes estimates. Stern has a contract with Sirius XM (NASDAQ: SIRI) satellite radio that expires in December 2020, Forbes reports.
Forbes claims Stern is considering retirement. However, I think Stern could delay retirement if Spotify offers him a big payday.
What Stars will Spotify Hire?
Beyond Limbaugh, there are broadcasters, comedians, pundits, actors, and musicians.
Obvious hires for Spotify could be cable TV pundits such as Tucker Carlson, Anderson Cooper, Rachel Maddow, and Sean Hannity. Cable TV is a dying medium, and podcasting is a rising medium.
Carlson, Maddow, and Hannity are marketable stars with large audiences. For example, Tucker Carlson Tonight attracted 4.56 million viewers a night in April 2020, The New York Times estimates. Meanwhile, Hannity attracted 4.39 million viewers in the same period.
Carlson or Cooper could jump to Spotify for more money and more freedom. For example, Andrew Wilkinson estimates CNN pays Anderson $11 million a year, or about one fifth to one tenth of Joe Rogan’s estimated income.
Why Tucker Carlson could Follow Joe Rogan to Spotify
Moreover, Rogan gets complete creative control, something Carlson, Cooper, and Limbaugh lack. For example, Rogan can say the F-word if he wants, interview obscure college professors, and chose advertisers.
In contrast, Limbaugh, Cooper, and Carlson all have corporate bosses who can censor them. Moreover, Cooper and Carlson’s bosses can dictate who they interview and control the advertising.
Finally, Rogan has the freedom to pick advertisers. In fact, Wilkinson claims Rogan can accept equity in companies that advertise on his show. Plus, Rogan can put on ads promoting brands he likes or charities he supports. Fox News or CNN could fire Carlson, Maddow, or Cooper for taking that step.
The Comedians Spotify could hire
Beyond cable stars, there are many other celebrities Spotify could hire. I think paying major comedians for podcast rights is a logical move for Spotify.
Notably, Joe Rogan is an active comedian. Moreover, comedians are experts at creating effective audio content that attracts audiences.
Thus, any big-name comedian could move to Spotify. Plus, now is a grand time for Spotify to sign up comedians because coronavirus is closing all the live comedy venues.
Big name comedians I think Spotify could recruit include; Dave Chappelle, Jay Leno, Jerry Seinfeld, Conan O’Brien, and Jon Stewart to name a few. I think comedians could move to Spotify because it could give them the freedom to record a few shows a month and make money without traveling.
Who Else will Jump to Spotify?
Moreover, Spotify could help comedians make money without traveling, appearing at corporate events, or hosting game shows. Thus, I predict some surprising comedians could migrate to Spotify, or other digital platforms.
Besides comedians, singers and musicians could want similar freedom. For example, a star could make money and promote her albums without concerts. Notably, enormous stars such as Beyonce could make money by creating exclusive songs for Spotify.
I think any musical act could move to Spotify including bands, singers, and possibly orchestras. However, established stars such as Britney Spears will have the edge on Spotify. One reason Spears, or Taylor Swift, could move to Spotify is to promote her music without extensive travel or groping by DJs.
What Podcasts will Spotify Buy?
Finally, I predict Spotify and its competitors will go on a shopping spree for podcasts.
Obvious podcast acquisition targets include political talkfests such as Pod Save America and Useful Idiots. One podcast star who could follow Rogan to Spotify is TV newswoman turned leftwing pundit Krystal Ball. Ball is attracting a vast audience with her reputation as the scourge of the Woke Left.
A podcast newbie who could get a big payday is left-wing icon and filmmaker Michael Moore. Moore claims listeners have downloaded his Rumble with Michael Moore podcast over 10 million times.
Thus, we could see companies such as Facebook (NASDAQ: FB) and Spotify writing big checks for any successful podcast. Hence I predict many stars will launch podcasts in search of a big payday. However, only a few of those podcasts will prosper.
Is Spotify a Good Stock for Ordinary People?
In the final analysis, I think Spotify (NYSE: SPOT) is an interesting speculative stock. However, I think there is no evidence Spotify’s platform is sustainable or can make money on a long-term basis.
I believe the lack of such evidence and a dividend makes Spotify a poor stock. I think ordinary investors need to avoid Spotify because it offers no income now.
Therefore, I think Mr. Market overpriced Spotify at$182.71 on 1 June 2020. Thus, I consider Spotify a speculative investment that only people who can afford to lose money should buy.
Originally published at https://marketmadhouse.com on June 1, 2020.