Spotify Strikes Billing Deal with Google, Stock Up 3%

Spotify (SPOT) announced a multiyear agreement with Google (GOOGL), which allows it to include its own billing system in the Google Play app store. Spotify shares rose more than 3% to $154.1 during the premarket session on March 24.

Spotify operates a music streaming platform and offers both free and paid plans. It also offers podcasts. The Spotify app can be downloaded from Google Play or Apple’s (AAPL) App Store. 

Spotify’s Billing System Coming to Google Play

The Google agreement allows Spotify to bring its billing system to Google Play, marking the first time that a third-party payment service would be allowed on the platform. The deal will expand payment options for Spotify customers getting their app from Google Play.

Alex Norström, Spotify’s Chief Freemium Business Officer, said, “We’re excited to be partnering with Google to explore this approach to payment choice and opportunities for developers, users, and the entire internet ecosystem. We hope the work we’ll do together blazes a path that will benefit the rest of the industry.”

Spotify expects to bring its payment system to Google Play later in the year. For Google, this is an experiment to see how alternative billing systems can work. The pilot program starts with Spotify, but Google plans to bring other developers on board.

Google and Apple have native billing systems for in-app purchases on their platforms, and they charge a service fee. They have traditionally blocked third-party billing options from those platforms. Spotify decided to create its own billing system outside the app stores for customers subscribing to its premium service. It ended 2021 with 180 million premium subscribers globally.

Why is the Agreement Great for Spotify?

There have been tensions between developers and app store operators over the service fee. The app store service fee can be as high as 30% in first year before dropping to 15% or lower in the subsequent years. Some developers have felt the fee is too high, resulting in complaints and even lawsuits. 

The Google deal allows Spotify to take advantage of Google Play’s strength while potentially minimizing the impact of its service fees. The majority of apps are downloaded from Google Play, with downloads reaching 111.3 billion in 2021 compared to 32.3 billion from Apple’s App Store, according to SensorTower data.

Wall Street’s Take

Consensus among analysts is a Moderate Buy based on 15 Buys, seven Holds, and one Sell. The average Spotify price target stands at $242.91 and implies upside potential of 65.53% to current levels, at the time of writing. Shares have declined 39% over the past year.

Blogger Opinion

TipRanks data shows that financial blogger opinions are 73% Bullish on SPOT, compared to a sector average of 69%, at the time of writing.

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