TikTok Dance Unlikely To Boost Spotify's Profits Today, Analysts Say

Several musicians are finding it difficult to navigate the algorithm. Nonetheless, Wall Street at least liked what it saw on Wednesday as TikTok-like sweeteners were added to the platform of audio streaming firm Spotify Technologies.

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Executives from Spotify SPOT, -1.68% unveiled a variety of new AI-powered, personalized features for users and artists in its second "Stream On" presentation on Wednesday. These features included personalized feeds, loaded with audio preview clips, personalized recommendations, and more sophisticated search options, a personalized AI DJ, which debuted last month, and short videos that artists can post to their profiles. More independent artists are now able to use Spotify's Discovery Mode, which can push some tracks more vigorously but comes with a lesser royalty payment.

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At the presentation, Spotify's chief product and technology officer, Gustav Soderstrom, said, "Our purpose is not to steal time. It is intended to save consumers' time.

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The redesign won't immediately improve the company's finances, according to Raymond James analysts, who wrote a research note on Thursday. The company is still losing money. Yet, they claimed that the new features might increase its total influence.

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Although the announcements "probably won't be primarily attributable to the financials, we think (they) will make the network an even more appealing venue for creators, and might potentially give more ammo for the business in talks with labels in terms of value-add," they added.

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In contrast, JPMorgan analysts claimed that Spotify "is now over the peak drag from podcast investments in content & development platforms/tools," adding that the platform's podcast division may begin to earn a profit this year or the following year.

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They said, "We also expect a price rise to the individual plan in the US is inevitable in the following months, which we estimate may deliver (more than $211 million) in additional annualized revenue.

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With business cutbacks, Spotify will have to navigate a weakened digital ad environment to get there. At a conference hosted by Morgan Stanley on Wednesday, Chief Financial Officer Paul Vogel stated that patterns in ad demand were remained "choppy" in the first quarter.

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Last year, Daniel Ek, the chief executive of Spotify, suggested raising the cost of U.S. subscriptions. Yet, any rise would occur when touring for all but the most well-known musicians becomes more challenging due to increased costs for items like hotels, gas, transportation, and airfare.

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Artists have also expressed dissatisfaction with Spotify and other streaming services over the little income they receive (less than a cent per stream), while analysts predict a price increase. Spotify stated that total payments to the music business have reached close to $40 billion at the "Stream On" event.

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The majority of Spotify's earnings is distributed to labels and other business partners; after these parties take their cut, the remaining funds are distributed to the artists. But, JPMorgan analysts cautioned that those royalty payouts "will impact on margins longer-term" for Spotify as it deals with demands from artists and Wall Street.

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And according on who you ask, artificial intelligence (AI) might either complement or replace the work of artists. Also, executives are becoming much more enthusiastic about how to leverage the technology as a result of the popularity of bots like ChatGPT.

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Vogel added that so far, the reaction for its AI-backed DJ has been "excellent" during the Morgan Stanley conference. But he asserted that it was too soon to provide measures. Yet, he made a passing mention of the concerns and expanding prevalence of AI's role in music production.

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He added, "Of course, the second area of AI debate on music is what generative AI may imply to music composition. "And obviously there's a lot of attention from the labels, especially Universal, on what's happening computer algorithms on Spotify and other locations: How do you believe about the chance with AI-generated music in terms of creating content, boosting engagement, and making consumers happy with what they're hearing on Spotify, but also clearly addressing the artist's concern about generative AI? ”

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He went on to say that Spotify wanted to "build a product where creators can produce and customers receive the best experience for them," but he also pointed out that over time, machines — from player piano to electronica — have played a bigger role in the creation of music.

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I believe it will just adapt, and we will need to do the same, he said.

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On Thursday, Spotify stock fell 1.3%. These shares have lost 8.2% during the last year. The S&P 500 Index SPX, -0.59% is down 7.5% during that time, in contrast.

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