In the past years, Spotify (SPOT  ) has been making some aggressive moves that hint at its long-term strategy. It currently has a valuation of $34 billion and generates $8 billion in sales. It's lost money every year since it's been public. So, anyone buying the stock is betting on being able to execute this long-term strategy.

Music Streaming to Podcasting

Most people know Spotify as the destination for streaming music. However, this isn't a great business, since Spotify has to pay for every stream and gets a fixed amount of money from each member almost like an all-you-can-eat music buffet. In this space, Spotify is competing with Apple (AAPL  ), Amazon (AMZN  ), and Google (GOOG  ) who have much deeper pockets and offer generous free promos to new subscribers. If Spotify stayed limited to this area, there's no way it could realize its valuation.

Instead, Spotify has made an aggressive move into podcasting by purchasing some of the biggest studios like Gimlet Media and the Ringer. It also inked a deal with Joe Rogan whose podcasts will move to Spotify next year. Unlike music, the cost of the podcasts is fixed.

Spotify plans to build an ad network, where it will be able to deliver targeted ads using its knowledge of listeners' demographics. Currently, podcasts tend to deliver the same ads to all its listeners just like TV or the radio. Spotify is betting that its ads will lead to higher conversion and higher rates due to targeting which would turn podcast ads into the equivalent of Google or Facebook ads. Once it has this ad network, more podcasts will look to be a part of Spotify due to the potential to earn more money. In turn, this will attract more users to Spotify as well.

Massive Opportunity

Due to podcasts being open and distributed across several platforms, it's difficult to get metrics. However, the estimates are that in 2019, podcast advertising generated $700 million in revenue, however, this is on top of a billion hours of podcast audio being consumed. This is the lowest ratio in terms of any advertising including print, TV, radio, or web.

Podcasts continue to grow rapidly in terms of popularity and size. Spotify is looking to create a platform for podcasts and a way to monetize them. In the process, it would create a flywheel that would attract users, podcasters, and advertisers. These early moves of paying big-time podcasts to move to Spotify are the initial efforts of building this flywheel and getting it to start slowly turning. If the company is successful in monetization, then it will start turning and running on its momentum.