Spotify's Advertising Business Offers a Lot of Value
Spotify (NYSE: SPOT) counted 141 million ad-supported listeners as of the end of the third quarter. And while free listeners outnumber premium subscribers by a considerable margin, Spotify's advertising revenue was less than 11% of its total revenue in Q3. Not only that, the gross margin on that ad revenue is about 10 percentage points lower than subscription revenue -- 16% versus 26.5%.
Many investors may see Spotify's ad business as a way to offer an on-ramp to the premium subscription service. Indeed, a lot of the tech company's subscribers started off as free listeners.
But Spotify's advertising business offers a lot of value beyond making it easier for consumers to try the music-streaming app before committing to a subscription. And management expects that value to grow faster than its subscription business over the long term.
Source Fool.com
