Podcasts will be as critical to Spotify‘s business as the streaming of original shows and movies are for Netflix, CFO Barry McCarthy told CNBC on Monday.
“I used to get this question about streaming,” McCarthy, who was Netflix’s finance chief at the time of the company’s IPO, said on “Squawk on the Street,” in response to David Faber’s question about the significance of podcasts. “It’s a different value proposition and a different use occasion, but people listen to a lot of music, a lot of radio.”
McCarthy’s appearance followed Spotify’s earnings report, in which the company announced a surprise profit, sending shares up as much as 19% to $143.15. Spotify also announced that McCarthy, who architected the Swedish company’s direct public listing last year, will retire in January.
While Spotify rose to prominence as a music streaming platform, it has significantly expanded into podcasting — building not just a large library of third-party shows, but offering original content exclusively for its users. For Netflix, before there was streaming available, the company used to send DVDs by mail.
Earlier this year, Spotify acquired podcast companies Gimlet Media and Anchor, and said it would spend $400 million to $500 million in podcast acquisitions in 2019.
Gimlet co-founders Matt Lieber (left) and Alex Blumberg
Gimlet Media
“Now it’s an audio service,” McCarthy said.
With the exception of live sports, McCarthy argued that everything else “you’re going to consume on-demand streamed, in your home, in your car, in your office, when you’re commuting, and there is a lot of that,” he said.
McCarthy said podcasting can help Spotify achieve its long-term goal of 35% operating margins, even if it’s weighing on profitability right now. After Monday’s rally, the stock is still down over the past year and fell below $111 a share in October, dropping close to 40% over the prior 12 months.
“I think the reason it rolled over was because we said to investors, ‘Hey, don’t expect the operating leverage we’ve been demonstrating to continue in the future because we’re going to start investing in this thing called podcasting,'” McCarthy said.
The investment will initially “be a tax” on Spotify’s financials, which is similar to when Netflix began building out its streaming operation, he said.
But over time, because podcasts as costs become fixed, “we’ll grow faster and be more profitable as a consequence,” McCarthy said.
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