One of the biggest hurdles in a slowing economy is not what is happening, but what people think is happening and tightening their grip on what is in hand. But after this week’s earnings reports from Spotify and SiriusXM, one analyst thinks the podcast ad market is doing better than he previously thought. B. Riley Securities analyst Daniel Day says the numbers suggest that regardless of what is happening in the economy overall, podcasting is continuing to solidify its position with marketers.
“Both Spotify and SiriusXM reported robust second quarter podcast revenue growth and provided affirmation of our view that podcast ad revenue should continue to grow at a healthy clip amidst a broader pullback in ad spend, as the medium has now become a ‘core buy’ for many advertisers,” says Day in a report to clients. He says growth in monetization should also outpace overall growth in listenership due to continued ad tech developments.
Spotify did not release podcast-specific ad revenue but during a conference call executives said they are seeing “increased demand” and a larger number of advertisers.
“We are seeing, despite a very dire macro environment, advertisers take up to the format really, really well,” CEO Daniel Ek said on a conference call. “I think that’s a testament that the product is actually working. The retention of the advertisers that we have is also going up, and that clearly shows that the format is working for them.”
Spotify CFO Paul Vogel said they did see “some softening” in ad spending at the end of June, but said they still expect “solid growth” during the third quarter albeit at a slower pace than what they might have forecast earlier in the year.
In a similar vein, SiriusXM management said its digital advertising revenue jumped 50% to $119 million during the second quarter. “While our advertising business is not immune to the macro trends felt industry wide, we are seeing growth in our ad business, particularly on the podcast side as we continue to build our off platform relationships and capabilities,” CEO Jennifer Witz said during a conference call with analysts on Thursday.
Day said the numbers confirm a larger shift. “Spotify and SiriusXM’s commentary is consistent with our view that podcast and digital audio revenue should grow at a healthy clip through a recessionary environment as the medium continues to take share of advertiser and agency budgets,” he said.
The data points have Day also seeing a positive spin on the company with the most podcast ad revenue – iHeartMedia – which is scheduled to report its earnings next Thursday (Aug. 4). “As the largest podcast publisher globally, we believe iHeartMedia offers above-industry podcast growth,” he tells clients. He is forecasting iHeart will report a 75% increase in podcast revenue growth for the second quarter totaling $93.5 million. If that number holds, Day says it would imply iHeart is grabbing podcast ad share from Spotify, SiriusXM and the industry more broadly.
“Not only is iHeart's podcast ad revenue growing more quickly vs peers on our estimates, we also believe they earn better margins given their outsized exposure to publishing,” Day says. He also notes that iHeart has achieved profitability in the segment unlike Spotify and SiriusXM.