Rival audio streaming company Spotify (SPOT -3.17%) saw its stock jump 5% on the news, likely as investors grew more bullish on the Swedish music industry pioneer’s competitive position. That’s why an Apple Music price hike should be good news for Spotify’s going forward business.
Price hikes give Spotify breathing space
The standard Apple Music subscription now costs $10.99 per month. Spotify currently charges $9.99 per month in the United States, the same price it launched more than 10 years ago. With inflation raging at 7% to 10% per year, there’s no reason to believe that Spotify couldn’t match Apple Music’s price increase (at least in the United States) or move to an even higher monthly price in the coming years . In addition to its standard plan, Spotify has popular student and family plans. The student plan will not be affected by these developments, as both Apple Music and Spotify charge $5 per month for people with college emails. However, Spotify’s family plan should look more attractive to Apple Music subscribers at just $16 a month for up to six users, just $5 more than Apple Music. This could convince people to switch, as well as allow Spotify to raise the price of its family plan, which it did in 2021 with zero impact on churn. Finally, Spotify is rumored to be planning an extra premium tier called Spotify Platinum, which it recently surveyed users about. The subscription will cost more per month and — if released — will include better audio quality, limited podcast ads and other features. Apple Music already offers this enhanced audio quality for all subscribers, so this price increase will make Spotify Platinum more competitive if/when it becomes available for purchase. Overall, Apple Music’s price hike gives Spotify a breather that many investors didn’t think it had, which should benefit the business going forward.
How Spotify could benefit financially
We understand now that Apple Music’s price hike will be good for Spotify, but let’s crunch some numbers and see how much of an impact it could have financially. Spotify currently has 195 million premium subscribers. We don’t know the mix of standard, student, and premium plans, but let’s assume that the company has the ability to raise prices by an average of $1 per month for all of its subscribers worldwide. That would be $12 a year per subscriber, which equates to $2.34 billion in annual revenue. This makes sense, since in the last 12 months Spotify brought in $12 billion in revenue. Of course, Spotify won’t be raising prices on all of its plans in all markets tomorrow. But I think this exercise shows how easily the company could increase its revenue without adding new subscribers because of the built-in pricing power at its disposal. If you own Spotify stock, this Apple price increase should be music to your ears. With shares down 60% this year, now could be a good time to buy some Spotify shares for your portfolio.
