Spotify drops Spotify Live, another blow to profitability

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Spotify drops Spotify Live, another blow to profitability

Spotify SPOT has removed its live audio initiative, Spotify Live, because the music streaming giant wants to slash costs and improve margins.

The company, which began scaling back its live audio programming last year, confirmed the news in an email to customers late Tuesday afternoon, saying that the Spotify Live app will shut down on April 30, 2023. The shutdown was the latest sign of problems with live audio after the pandemic initially boosted consumer demand for those types of services. According to Sensor Tower data, Clubhouse, which shot to fame in early 2020, has seen monthly active users drop by 82%.

Clubhouse was valued north of $4 billion at the height of its popularity in 2021, a stark fall from grace.

In 2021, Spotify purchased Betty Labs for more than $60 million, as the platform hoped to capitalize on the live audio boom. The acquisition helped create Locker Room, which was later rebranded as Spotify Live.

Cost savings are a priority for the company after hefty podcast investments, which have been a major drag on margins and profitability.

Spotify has spent $1 billion a month in the podcast market, signing celebrities like the Obamas, Prince Harry, and Kim Kardashian. Spotify paid $200 million for Joe Rogan exclusively to the platform, and $200 million for The Ringer in 2020.

Spotify CFO Paul Vogel said that the platform will look to improve its profitability beginning in 2023 on a gross margin and operating income basis and categorize 2022 as a peak investment year during the company's investor day. The company laid off 6% of its workforce earlier this year because of a reorganization focused on efficiency.

On top of these cost cutting initiatives, Spotify has continued to grow its user base - a strong catalyst for recent analyst and investor optimism.

The platform revealed it crossed 500 million monthly active users MAUs and detailed changes to its user interface during its second-ever Stream On event last month.

Wells Fargo analyst Steve Cahall wrote a note to clients this week saying that SPOT will surpass expectations on margin expansion over the next 18 months. The investor believes that increases are taking longer because of the fact that the follow-through will be better structural margins that we would be buying if folks sell the news''. Cahall, who reiterated his Outperform rating and $180 price target, believes that price increases are predicated on a stronger margin profile for SPOT, which is why he believes that increases are taking longer. Follow-through commentary is what we're playing for. Cahall warned that if Spotify can't deliver on its guidance for a sequential margin improvement this year, investors will lose patience in the stock as a self-help story. Spotify stock is up a whopping 66% year-to-date, but still down more than 15% on a year-over-year basis.

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