Spotify (SPOT) has ended its live audio initiative, Spotify Live, as the music streaming giant looks to slash costs and improve margins.
The company, which began reducing its live audio programming last year, confirmed the news in an email to subscribers on Tuesday afternoon, writing: “The Spotify Live app will be shutting down on April 30, 2023. You can still listen to any room Or connect with the artist. Until then, we’re excited to bring more live events to Spotify in the future. Stay tuned!”
The shutdown is the latest sign of trouble within live audio after the pandemic initially boosted consumer demand for those types of services. Clubhouse, which shot to fame in early 2020, saw an 82% drop in monthly active users, according to Censor Tower data cited by The Verge.
It has fallen from grace, with Clubhouse being valued north of $4 billion in 2021 at the height of its popularity.
That success prompted Spotify to buy Betty Labs in 2021 for more than $60 million as the platform hoped to capitalize on the live audio boom. The acquisition helped create Locker Room, which was eventually rebranded to Spotify Live.
Yet the service was unable to garner the same level of attention as its competitors: “I think [the shut down] was related to a lack of consumer interest and cost savings,” Pivotal Research analyst Jeff Wlodarczak wrote in an email to Yahoo Finance.
Spotify CEO Daniel Ek speaks during a press event on May 20, 2015 in New York. Spotify, which offers free on-demand music or ad-free tunes to paying customers, said it will now also offer video content and podcasts. Reuters/Shannon Stapleton
Cost savings are paramount for the company following heavy podcast investments, which have been a significant pressure on margins and profitability.
To date, Spotify has spent $1 billion in the podcast market by signing celebrities like the Obamas, Prince Harry, and Kim Kardashian. The company paid $230 million to acquire podcast studio Gimlet in 2019. Spotify then paid $200 million to have Joe Rogan exclusively on the platform, and another $200 million for The Ringer in 2020.
Spotify CFO Paul Vogel said during the company’s investor day that the platform will improve its profitability based on gross margin and operating income in 2023, classifying 2022 as a “peak investment year.” Earlier this year, the company announced a restructuring focused on “efficiency” and laid off 6% of its workforce.
On top of those cost-cutting initiatives, Spotify has continued to grow its user base — a strong catalyst for recent analyst and investor optimism.
The platform revealed that it has crossed 500 million monthly active users (MAUs) and detailed significant changes to its user interface during its second Stream On event last month.
“We expect Spot to outperform expectations for margin expansion over the next ~18 months,” Wells Fargo analyst Steve Kahl wrote in a new note to clients this week. “Investors expect price increases, but we think the follow-through will be better structural margins (we’ll be buyers if people ‘sell the news’).”
Cahall, who reiterated his Outperform rating and $180 price target, said he expects price increases on the platform “in the coming months” following price hikes in both Apple Music (AAPL) and Amazon Music (AMZN).
“We think the price negotiations with the music labels are based on a strong margin profile for SPOT, and this is the reason why accretion is taking longer,” the analyst added. “Follow-through commentary is what we’re playing for.”
Still, Kahl warned that if Spotify can’t deliver on its guidance of sequential margin improvement this year, investors “will lose patience in the stock as a self-help story.”
Spotify stock is up 66% year-to-date, but is still down more than 15% on a year-to-date basis.
Alexandra is a Senior Reporter at Yahoo Finance. follow him on twitter @alliecanal8193 and email her at [email protected]
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