Audio streaming giant Spotify reported better-than-expected third-quarter subscriber gains and a surprise operating profit.
The company ended September with 226 million paying premium subscribers, up from 220 million as of the end of June, exceeding its forecast that it would reach 224 million in the latest period.
Stockholm-headquartered Spotify, led by CEO Daniel Ek, also reported that it hit 574 million monthly active users (MAUs) as of the end of the third quarter, up from 551 million at the end of the second quarter. The company had previously estimated it would end the latest period with 572 million MAUs.
Related Stories
“We walked into 2023 thinking we would do just over 20 million in net subscriber ads for the full year, but we’re actually on track to deliver 30 million, which is a significant beat from where we thought we would be. In fact, this will be the second biggest full year gain in net subs additions since going public,” Ek said on the company earnings call.
Third-quarter revenue jumped 11 percent to €3.36 billion ($3.57 billion), as advertising revenue rose 16 percent despite macroeconomic headwinds, driven by podcasting and the Spotify Audience Network, among other things. “Ad-supported revenue grew 16 percent year-over-year (or 24 percent on constant currency), reflecting double-digit year-over-year growth across all regions,” Spotify said. “Music advertising revenue re-accelerated and grew nearly 20% year-over-year, driven by growth in impressions sold and stable pricing. Podcast advertising revenue growth remained in the healthy double-digit range, driven by significant year-over-year growth in sold impressions across original and licensed podcasts and the Spotify Audience Network, which was partially offset by softer pricing.”
The music streamer, which has been stepping up its focus on profitability, also swung to a quarterly operating profit of €32 million ($34 million), compared with a year-ago loss of €228 million. As key drivers, it “higher gross margin,” helped by subscriber growth and the early impact of price increases, “as well as lower-than-expected personnel and related costs, and marketing spend.”
On the earnings call, Spotify CFO Paul Vogel reiterated a one- to two-year timeline for the podcasting segment to reach break even, adding he predicts podcasting will reach that threshold “pretty soon.”
Amid escalating costs, Spotify has been undertaking several cost-cutting measures. The streaming giant laid off 200 employees in June, after previously laying off 600 employees in January and conducting layoffs in October. The company has also made programming cuts, including ending its exclusive podcasting deal with Prince Harry and Meghan Markle in June. And Spotify merged podcasting studios Parcast and Gimlet into a single division after canceling 10 shows from the two companies.
The company also launched a new audiobooks offering for premium subscribers on Oct. 3, starting in the U.K. and Australia, with the U.S. expected to roll out this winter. While Spotify invested in the launch, Ek said initial investment in the audiobooks business will not “derail our progress on the gross margin side or our progress on the operating income side.” He added that he believes it will be helpful to 2024 results.
“While it’s still too early to see the impact in our numbers, initial signs from subscribers in the U.K. and Australia are incredibly positive as we bring them more content to discover. In the first two weeks since launch, premium subs in these two markets are loving the breadth of titles and have already listened to over 28% of the catalogue,” Ek said.
In late July, Spotify also unveiled that it would increase prices on its premium plan, bringing the cost to $10.99 per month.
In its forecast for the current fourth quarter, Spotify projected that it would end 2023 with 235 million premium subscribers, implying growth of about 9 million in the final quarter, and 601 million monthly active users, a gain of around 27 million. The music streamer also predicted a fourth-quarter operating profit of €32 million.
THR Newsletters
Sign up for THR news straight to your inbox every day