The Spotify Machine

Spotify recently held their 3rd ever investor day. Before we dive into what Spotify covered at their investor day, it’s worth covering why we should care. Investor days are meant to share the long term vision of the company. Having a vision is one thing, but executing on it is another. You need to have both.

2018 Investor Day

Spotify was just going public, with significant concerns around their business model. The investor day laid out their plan: growth. Over the next 4 years, Spotify did just that.

2022 Investor Day

It’s worth winding back at this point to where Spotify was in 2022. They were a company with a proven track record of growing sales, but many questions on profitability. Spotify layed out the path to profitability and then executed on it. Four years into the decade long plan shows Spotify well on track to hit this.

2026 Investor Day

The “North Stars” remained the same for Spotify during this investor day, namely: 1 billion subscribers, $100 billion in revenue, and a gross margin of over 40%. Layer on top of this a “mid-teens revenue CAGR” and you have a very nice financial vision of the future.

AI was the other big topic of the investor day, with Spotify laying out the case that it is a catalyst, not an obstacle. The reality is that it’s probably both. The big AI announcement was around AI covers / remix deal with UMG. This is an interesting (and positive) development, but doesn’t make much of a functional change in the short term.

One more interesting tidbit was Spotify talking about potentially declaring a dividend. Having excess capital isn’t a bad thing (it’s a good thing), but it does show a very different stage in Spotify’s development.

Now let me give you more insight into our approach to capital allocation. So we will keep a strong balance sheet. This provides us with the flexibility to execute and reinvest in our strategy. We will also continue to explore inorganic investments like we always have, that will strengthen our existing businesses and accelerate our strategy. We will keep countering dilution from stock-based compensation through share repurchases. And we will also continue to see strong cash flow generation. And even with these efforts, we plan to start returning excess capital to our shareholders. – Alex Norström

Sit On Your Hands

To me, this investor day changed nothing for me. The North Stars remain the same, but the questions still linger as well. Does the two CEO model really work? Does Spotify really have the long term vision without Ek in the day to day operations? Is AI a threat?

These investor days are great for understanding if the vision has changed. It hasn’t. Next is operating on that vision. Spotify has done that over the their entire history, but will history repeat? The important questions remain unanswered, but they can only be proven with time.