Spotify Faces Long Growth Runway on High Conversion Rate of Free Users to Paid, Says Analyst

Spotify should enjoy “years” of global penetration, Macquarie's Amy Yong wrote investors Thursday, saying “music has no boundaries.” Affinity for top artists across shared markets and a rise in connected devices should drive a 23 percent three-year compound annual growth rate in monthly average users, to 200 million by the end of 2020, the analyst said. Spotify's ability to convert free users to paid is one of the service’s “most impressive feats,” she said. Its mobile presence coupled with a 70 percent user base under 35 years old should translate to growth in an addressable market of $100 billion for digital ads and another $45 billion-$50 billion in radio, Yong said. At roughly 75 percent of revenue, content is the company’s biggest cost, she wrote, and its relationships with labels including Sony, Warner, Vivendi and Merlin “are delicate.” The labels have had stakes in Spotify and see it as a preferred streaming platform against Apple and Amazon, she said.