Raising Subscription Prices Means Profits For Spotify
Spotify (SPOT) is raising prices and the underlying stock is up 4% this morning.
Shareholders are happy and there is more to come from this European giant.
Much of the same pricing behavior has been experienced in products like Netflix whom are incentivized to raise prices to get that extra juice out of its stock.
Why not raise prices when customers are happy to pay for it?
Remember, this only works when a company is part of a duopoly, monopoly, or something of that nature where they have a firm grip on pricing power.
Consumers are willing to shell out that little extra bit for Spotify because the competition is so much worse.
This has been going on for quite a while and tech was famous for the “freemium” model built on free services.
After building a significant audience and hooking the audience for free, a subscription-based model was rolled out to monetize the customer base.
Spotify is looking to extract a little more from the premium customer.
The price of Premium Individual will pay more so that SPOT can continue to invest in and innovate the product offerings and features then levy another major price hike.
That’s the game in tech land and we roll with the punches.
The company offers an advertising-supported free service with limited features and a subscription-based paid service that gives access to all its functionality, with premium subscribers accounting for most of its revenue.
The streaming giant could drive further growth by offering tailored subscription plans based on consumer preferences in verticals such as music, audiobooks, and podcasts.
The company's quarterly gross profit topped $1.08 billion for the first time in April after it reined in marketing spending.
Its premium subscribers rose by 14% to 239 million and it forecast monthly active users at 631 million for the second quarter.
The company offers an advertising-supported free service with limited features and a subscription-based paid service that gives access to all its functionality, with premium subscribers accounting for most of its revenue.
I believe the streaming giant could drive further growth by offering tailored subscription plans based on consumer preferences in verticals such as music, audiobooks, and podcasts.
Since we are in the last stage of the economic cycle, expect tech companies to pull out all the bells and whistles to charge extra for the software, hardware, and other tech.
Being that we are late cycle, there is an incredible push for that last incremental dollar before the economy goes into recession and I do believe that tech companies will behave in a somewhat mercantile way to get what they want.
Tech companies, especially the bigger ones, have a massive incentive to stave off a recession for one extra quarter so that much of the management can cash out at all-time high stock prices with vested shares.
Tech will eventually experience a steep pullback in shares and the longer that is staved off, the better for everyone because who knows what the next iteration of tech will look like.
It could become more corporate which would mean higher prices for the consumers and higher shares prices for stocks like SPOT.
Remember that the only thing in tech that is certain is change and that is what we will see. It’s sooner than you think and right around the corner for many tech companies.
In the meantime, expect higher product prices for streaming and software products like Spotify, Netflix, and other lookalikes that will lift corresponding share prices.
