Three Things (6/12)

Spotify’s new membership tier

Spotify plans to introduce a new tier specifically for users who interact with the app most often. The “Supremium” tier will grant access to high-fidelity audio, instantly generate custom playlists for certain activities or times of year, and offer dynamic playlists that learn and adapt to user behavior. The new subscription tier will cost at least $5 more per month but will vary depending on each user’s base plan - a pricing model that comes after years of charging customers one price for total access.

The premium plan could generate millions of additional revenue, but the benefits will have to outweigh the incremental cost to the highly active user population, as the “high-fidelity audio” offering, for example, hasn’t spurred much excitement on other platforms. We love a subscription business, and it sounds like this could be a low cost way to increase gross margins. If Spotify can properly execute on a tier with ‘valuable enough’ perks, the benefits could be limitless.

OpenAI’s new executives

OpenAI announced that it hired a new CFO, Sarah Friar, who was formerly CEO of Nextdoor and CFO of Square, and a new chief product officer, Kevin Weill, from Facebook and Twitter. An OpenAI blog post noted that Friar and the finance team will continue to support the company’s “mission to provide investment in their core research capabilities” necessary for “meeting the needs of its growing customer base.” OpenAI is aiming to build up its leadership when the quality and pace of innovation is vital for it to keep up in the AI race.

OpenAI’s new partnership with Apple and the integration of ChatGPT into iOS updates this year will require guidance from top tier management. The partnership is a huge win for OpenAI, given they’ve earned highly sought after real estate on iPhones, but proper execution will be key for continued success. The new executive members, not just as individuals but more importantly as a team, will directly impact the final product that lands in users’ hands.

General Motors share buybacks

General Motors announced that a new $6 billion stock buyback authorization was approved by its board. The company said that the profitability of its “combustion-engine vehicles” business has allowed it to reward shareholders by returning cash to them through buybacks. Stock buybacks also create shareholder value by increasing the price of the stock and reducing shares outstanding.

GM has been heavily investing in its EV business, which it says is growing slower than expected, as it recently lowered its production target. The buybacks should also allow GM to bolster shareholder support for its EV investment endeavors, especially while demand has been deteriorating. Being cost conscious and focusing on operational efficiency has supported free cash flow, allowing for investment in EV and return of capital to investors even in the face of an uncertain macroeconomic environment.

Disclosures:

As of writing, OpenAI is a 4.13% holding in the ARK Venture Fund. As of writing, AAPL is a holding in Titan's Flagship strategy.

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