Is Spotify (NYSE: SPOT) making more money with Joe Rogan?

It has been over a year since podcast superstar Joe Rogan made his ground-breaking deal with Spotify (NYSE: SPOT). Hence, it is a good time to ask how much money Spotify is making?

To explain, media outlets claim that Spotify (SPOT) paid Joe $100 million to take The Joe Rogan Experience to its platform. In exchange, Spotify became the exclusive home of The Experience. So how did that work out?

Well, Spotify has more subscribers. Statista estimates that the number of premium Spotify subscribers worldwide grew from 130 million in the first quarter of 2020 to 158 million in the first quarter of 2021. However, there’s no evidence Rogan attracted the 28 million new subscriptions.

Remember, the growth coincides with the COVID-19 pandemic. The Pandemic trapped tens of millions of people at home and in need of entertainment. In particular, many remote workers needed something to listen to while they worked from home.

Consequently, many more people began using Spotify for music and podcasts. Thus, Spotify’s growth could have little to do with Rogan.

How much money is Spotify Making?

Spotify Inc (NYSE: SPOT) is making a little more money in the pandemic world.

For example, Spotify’s quarterly gross profit rose from $523 million on 30 June 2020 to $799 million on 30 June 2021. In comparison, Spotify’s quarterly operating income rose from -$183.88 million on 30 June 2020 to $14.46 million on 30 June 2021.

Overall, Spotify’s quarterly revenues grew from $2.08 billion on 30 June 2020 to $2.81 billion on 30 June 2021. Spotify’s revenue growth is increasing. Stockrow estimates that Spotify’s revenues grew by 35.1% in the quarter ending on 30 June 2021. In comparison, the revenues grew by 11.01% in the quarter ending on 30 June 2020.

How Much Cash Does Spotify generate?

Similarly, the quarterly operating cash flow rose from $35.25 million on 30 June 2020 to $65.03 million on 30 June 2021. However, the quarterly ending cash flow fell from $214.92 million on 30 June 2020 to -$4.12 million on 30 June 2021.

However, Spotify (SPOT) can generate enormous amounts of cash. For example, Spotify reported a quarterly ending cash flow of $2.944 billion on 31 December 2020.

Notably, I think Spotify is constantly borrowing money. For example, Spotify reported a quarterly financing cash flow of $1.506 billion on 31 March 2021. The quarterly financing cash flow rose from $106.87 million on 30 June 2020 and fell to $7.09 million on 30 June 2021.

Spotify’s total debt grew from $687 million on 30 June 2020 to $2.105 billion on 30 June 2021. Consequently, I think Spotify is borrowing enormous amounts of money to fund expansion. Hence, Spotify cannot grow without borrowing, which is bad.

What Value Does Spotify Have?

Spotify (SPOT) gain value over the past year. For example, Spotify’s total assets grew from $6.216 billion on 30 June 2020 to $8.872 billion on 30 June 2021.

Impressively, Spotify’s cash and short-term investments grew by over $1 billion in a year. Spotify had $1.904 billion in cash and short-term investments on 30 June 2020 and $3.619 billion on 30 June 2021.

Hence, Spotify is adding value, but Mr. Market is paying less for it. He paid $250.02 for Spotify on 4 August 2020 and $221.91 on 6 August 2021. Thus Spotify’s share price is falling as the company makes more money.

I think Mr. Market still overprices Spotify, but many investors will wonder if SPOT has value characteristics. The company is growing as its share price falls.

Can Spotify Grow?

Many people will wonder if Spotify has limited growth potential. In particular, Spotify’s management could believe there are limits.

They are testing Spotify Plus a 99¢ version of its Spotify Premium subscription that includes ads, The Verge claims. Spofity Plus appears to be a test to see if Spotify users will accept ads.

Skeptics, like me, will wonder if Spotify management wants to tap advertising revenue. I think that could be an enormous threat to some businesses in the United States. In particular radio, which relies on advertising dollars.

I think US radio’s ad revenues could be up for grabs because the king of talk radio Rush Limbaugh died in February 2021. Notably, Cumulus Media Inc (NASDAQ: CMLS) is planning to drop the Rush Limbaugh and Sean Hannity shows, Huffpost claims.

Does Spotify have competition?

In addition, Cumulus is competing directly with Spotify and Rogan by offering popular podcasts. Those podcasts include some potential Joe Rogan alternatives. For example, the marketing professor turned provocateur Scott “Prof G” Galloway and wrestling icon turned Podcaster Chris Jericho.

Jericho, in particular, could become a nicer and less controversial Canadian version of Rogan. Similarly to Rogan, Jericho has a background in professional fighting (Rogan is UFC’s most visible announcer) and he’s a prolific podcaster.

Jericho is getting enormous publicity because he’s a headliner in the red hot All Elite Wrestling (AEW) promotion.  AEW’s Dynamite show attracted over one million viewers a week for three straight weeks on cable, the Wrestling Observer estimates. Meanwhile, Galloway is crazy and outspoken enough to appeal to podcast fans.

Will Sean Hannity come to Spotify?

Thus, Spotify has some serious competition. I don’t know if Spotify can compete, but Spotify management has noticed the competition. Notably, both Jericho and Galloway have commercials in their programs and pitch products as Limbaugh used to.

Meanwhile, Spotify could experiment with ads through Spotify Plus. One reason Spotify is experimenting with ads could be to attract lessor podcast stars such as Jericho to its platform. Adding ads is smart because it could allow Spotify to attract some talents at a lower price.

Some talents could work for free or a lower paycheck, in exchange, for ad revenue. Notably, one talk star who could be available is Fox News personality Sean Hannity. Huffpost claims Cumulus (CMLS) could drop Hannity, which could allow Sean to come to Spotify.

In the final analysis, I think Spotify (NYSE: SPOT) is an interesting company in a fascinating business. However, I think Mr. Market overprices Spotify. Hence, investors need to watch Spotify but not buy it.