Clubhouse Drop-In Audio made a huge splash in 2020 for kickstarting the social audio revolution. But as time went on, every tech company started working on a competitive technology. Now two major competitors are in the mix that may take the reigns of this new buzzy technology – Spotify Technology SA (NYSE:SPOT) and Facebook, Inc. (NASDAQ:FB).
But which is the better investment between Spotify vs Facebook?
Spotify is a $50 billion company that’s deeply embedded in both the music business and podcasting. The company spent about $1 billion on podcast-related acquisitions over the past two years, including the Joe Rogan Experience and Call Her Daddy.
The company has a fast lane to audio creator success, but Facebook is a nearly trillion-dollar juggernaut. Its massive platform has about 1.4 billion people using the Groups feature alone which is where much of the social audio and podcasting will take place.
Could Spotify Be The Netflix of Audio Streaming?
Spotify got a big boost in its stock price when lockdowns took effect. As people moved indoors, streaming services were king, and shares reached a high trading price of $387.44 before leveling out below $300.00, a price analysts believe it can eclipse.
The company spent approximately $1 billion acquiring podcasts over the past two years and now owns the rights to some of the biggest on the planet. The Joe Rogan Experience, Gimlet Media’s podcasts, and Call Her Daddy are just a few of the gems in its growing content library.
And then there’s the company’s Clubhouse competitor. The company released Greenroom to compete with Clubhouse Drop-In Audio. Podcasters, musicians, and other audio creators are excited at the possibility of gathering a live audience in Greenroom and uploading directly to Anchor.fm for distribution across podcasting services.
By 2030, the company could become an audio Netflix that bypasses the need to license studio content by fostering in-house content creation. Of course, it will need to keep spending heavily to reach that goal.
Spotify Margins Have Room To Rise
The Swedish audio streaming company is a favorite of ARK Invest’s Cathie Wood. The company has continued to generate double-digit growth every year since its 2018 direct listing. Revenue over the past four years grew about 2.4x and its most recent quarter posted USD 2.5 billion in revenue.
Despite these successes, it has a low gross margin in the mid 20 percent. The “low” gross margin is a function of large payouts to musicians and industry players, but it can increase that margin if it removes the middlemen and works directly with the talent.
That $1 billion it spent since 2019 depresses earnings in the short term, but the long-term opportunity should be worth it. It already has 25 percent of its monthly active users tuning in to its podcasts, and Greenroom and the Spotify Greenroom Creator Fund are enticing users to abandon Clubhouse for its platform.
This is just the beginning of an audio arms race though, because Facebook launched its Live Audio Rooms soon after.
Facebook Live Audio Rooms Has Long Runway
Mark Zuckerberg (and his sister Randi) attended several rooms in Clubhouse before launching a competitor on Facebook called Live Audio Rooms and Podcasts. Like Spotify, the company is hoping to leverage the power of social audio to create engaging content for its listeners.
The feature is being rolled out to its verified creators with Pages, along with dozens of select Group admins to start. Soon, it will be more widely available, opening a path to create topic-focused content from within the most active groups and pages on the platform.
Unlike Spotify, Facebook isn’t stopping at audio – it’s also enticing video streamers from rival Amazon’s Twitch streaming service by waving live stream subscription fees for the next two years. And when Clubhouse used Instagram to promote its Creator First accelerator program, it was buried immediately after by IG’s First Creator Week.
But Facebook has risks.
Facebook Has Lots of Upside Still
Facebook’s namesake platform is one of the most engaging and profitable advertising platforms on the planet. It’s also deeply invested in virtual reality through Oculus and much more.
From a valuation perspective, analysts see upside to $309 per share based on cash flow forecast analyses.
Its on-platform Facebook Marketplace is also growing and competing well with eBay, Craigslist, and other secondary marketplaces. However, because it’s so big, it can plateau. The company also faces regulatory hurdles.
YouTube Attacking Spotify Top Spot
The biggest risk to Spotify investors is the company has to continuously spend big-dollar payouts to the music industry. And it’s at the top of its game and competing with giants like Apple (AAPL), Alphabet (GOOG), and Amazon (AMZN) in the audio streaming wars.
Apple Music has over 70 million paid subscribers, with 55 million users on Amazon Music (although it’s unclear how many pay for it). YouTube has another 30 million subs and is slowly taking over Spotify as the biggest music bankroller.
The 2020s will be defined by how much talent Spotify can grow on its own platform.
Dangers of Investing in Facebook
Facebook has a relevancy problem – it own three of the largest social media platforms, and governments are looking to break it up.
The company has been mired in controversies related to election tampering and several countries and localities believe it’s a prime target for antitrust action. Indeed Europe has its sights set on it too.
If the company gets hampered by regulators, it gives the competition a lane to beat them. No company is too big to fail, and Facebook could be defined by antitrust in the 2020s.
Spotify Vs Facebook Stock: Which Clubhouse Competitor Is Best?
Spotify and Facebook are both bringing competition to the social audio revolution launched by Alpha Exploration’s Clubhouse. This technology bridges the real-time engagement of broadcast radio with the distribution and feel of modern podcasting.
Both companies are comparatively huge and could bottleneck Clubhouse’s growth. But there’s no guarantee either will ultimately win. What we do know is social audio is a piece of their roadmaps that each is leveraging in a different way to find out how to turn a profit for investors.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.