• by Wayne Friedman , January 15, 2020

Although advertising revenues at Spotify have risen 30% since 2016, they will still be a fraction of its overall revenue picture for years to come, according to one media analyst.

Currently, Spotify is estimated to be getting around $650 million to $700 million a year in advertising revenue -- which is about 10% of the music streaming platform’s overall $6.8 billion revenue in annual revenue.

Todd Juenger, media analyst for Bernstein Research, says key emerging markets for Spotify will limit big advertising growth.

“The average CPM [cost per thousand viewers] for users in emerging markets are close to one-tenth of those realized in U.S. and Europe.” Recent major growth -- the revenue/ad-supported user in North America and Europe  -- was around 50%, says Juenger.

“Given that we expect in the future most of the company’s users will come from emerging markets -- and those will be over-represented by the ad-supported tier given they have much lower paid conversion rates -- we see the revenue/user contracting [emphasis added] due to mix effects.”

Juenger's forecast is that about 80% of Spotify’s ad-supported users will come from emerging markets, versus 45% currently.

Currently, 55% of ad-supported users come from North America and Europe -- down from 70% in 2016.

As of the third quarter of 2019, Spotify had 141 million advertising-supported users, and 113 million premium subscription users.

Juenger also worries that advertising-supported user revenues will produce lower gross margins -- less than 20%.  “Hence, the contribution of ad supported to revenue is small -- and to profits even smaller.”

Looking at advertising from Spotify podcasts -- still a young business-- Juenger estimates that revenues will climb to $347.9 million by 2030 from $11.3 million this year.