If Spotify’s announcement that co-founder and CEO Daniel Ek is stepping down and naming his successors looks familiar, it’s because Netflix did the exact same thing nearly three years ago. And just as Netflix thrived in its post-Reed Hastings years, Spotify is well situated for its post-Ek era, according to experts.
On Jan. 19, 2023, Netflix co-founder and CEO Reed Hastings announced his transition to executive chairman and the appointment of co-CEOs Ted Sarandos and Greg Peters. The new leaders had been prepared for their new roles. In the two and a half years before Netflix’s announcement, Hastings had delegated more responsibilities to Sarandos and Peters, who had each been with Netflix for 15 years. The move to executive chairman, Hastings noted in a blog post, had been taken by Microsoft founder Bill Gates and Amazon founder Jeff Bezos before him.
Strikingly similar news arrived on Tuesday (Sept. 30) when Spotify announced that Ek will become executive chairman and be succeeded by co-CEOs Alex Norström and Gustav Söderström. Like Sarandos and Peters, Spotify’s new co-CEOs were groomed to take the reins from a founder/CEO who had become synonymous with the company’s brand. And like Netflix’s thoughtful succession plan, Spotify’s effort to replace Ek was a long-term project. Woody Marshall, lead independent director on Spotify’s board, said in a statement that the board “has been working closely with [Ek] on the evolution of Spotify’s leadership structure for several years.”
The similarities shouldn’t be surprising. As J.P. Morgan analysts noted in a Sept. 30 note to investors, Sarandos holds a seat on Spotify’s board of directors, and the companies have a common investor in venture capital firm Technology Crossover Ventures, which provided early-stage growth capital and continues to own shares in both companies. These relationships “should help ensure a smooth transition and continued strong execution” at Spotify, analysts wrote.
The market’s reactions to the Spotify and Netflix succession plans were different, though. Netflix’s share price jumped 7.8%, though notably, the announcement coincided with the company’s Q4 2022 quarterly earnings release, in which the company’s net subscriber additions exceeded its guidance. On Tuesday, as the market absorbed Spotify’s news in the absence of any positive financial data, its share price fell 4.2%, shaving off approximately $6.2 billion of market value.
Is a change in CEOs worth a $6 billion hit to Spotify’s value? If Netflix’s trajectory since Hastings’ departure is any indication, Spotify will continue to rule the audio subscription business. Since Hastings stepped down as CEO, Netflix’s share price has risen 240%.
Sarandos and Peters have increased Netflix’s market dominance and taken the company in new directions. Netflix, long a subscription-only platform, successfully grew the ad-supported tier it launched in 2022. The growth of its advertising business has enabled its foray into live sports, such as NFL games that include the traditional commercial breaks, even for subscribers to Netflix’s ad-free plans. The company is also financially healthier, with current margins and profitability better than during Hastings’ tenure as CEO.
Norström and Söderström could follow a similar trajectory of measured gambles and financial discipline. Under their leadership, Spotify will — probably, based on public comments — launch a superfan tier and unlock additional consumer spending. Like Netflix, Spotify will become a more global service and gain subscriptions in developing markets that currently lean toward free, ad-supported listening. The duo is also inheriting a company that has vastly improved its margins over the last couple of years, and which can, experts predict, raise prices even further without alienating current or future subscribers.
Equity analysts believe Spotify’s new leaders are up for the challenge. Guggenheim analysts called Norström and Söderström, who have been with Spotify for 14 and 16 years, respectively, “proven leaders given the sustained business momentum over the past several years.” CFRA said the co-CEOs “could affect the next stage” of Spotify’s expansion and called Tuesday’s pullback in the share price “a buying opportunity.” J.P. Morgan analysts noted that Spotify has been running smoothly under Norström and Söderström’s role as co-presidents and co-CEOs-in-waiting. The company’s valuation attests as much: In the last two years, Spotify’s share price has risen 245%.
Like Hastings, Ek played the role of innovative founder who developed a new category of streaming entertainment. But as Sarandos and Peters have shown, founder-led tech companies don’t have to suffer when the founder/CEO steps down.