Morgan Stanley Says Spotify's Foray Into Audiobooks Could Lower Churn And Increase Pricing Power

Morgan Stanley analyst Benjamin Swinburne maintained an Overweight rating on the shares of Spotify Technology SA SPOT with a price target of $185.

Spotify announced that it is more formally entering the audiobooks market, starting with the U.K. and Australia, with other parts of the world following soon.

Today, the offer will include 15 hours of free listening for Premium subscribers with participation from all major book publishers and independents.

Related: Spotify Takes On Amazon's Audible, To Let Premium Users Listen To 15 Hours Of Audio Books

Spotify's ability to not only maintain a global leadership position in streaming but to add to that position has been driven first and foremost by its product leadership, said the analyst.

By building more value into its audio service for users, including further differentiating it from the competition, Spotify should see lower churn and increased pricing power, added the analyst.

The analyst believes the product launch was factored into both 2023 guidance and the intermediate and long-term plans laid out last summer.

When Spotify went into podcasting in 2020, it did so in an ill-defined market and took a multi-year view to building scale through licensing agreements and studio acquisitions, noted the analyst.

The audiobook market is roughly $5 billion today but the global book market is $140 billion. Spotify and its more than 500 million MAUs represent a significant increase in distribution, added the analyst.

The nature of the audiobook business, which is a more variable model based on consumption, should allow Spotify to avoid material earnings dilution even in its early years of deployment, opined the analyst.

Price Action: SPOT shares are trading higher by 1.85% at $157.37 on the last check Wednesday.