Spotify reported 551 million monthly active users in its second quarter, adding 36 million from the previous quarter and hitting an all-time high for the company.
Additionally, the music giant added 10 million paid subscribers, three million above its guidance forecast and a record for the second quarter, to reach 220 million.
Still, operating losses at the company, which has been promising to focus on profitability, grew to reach €247 million (approximately $273 million), missing the company’s guidance of €129 million ($142 million). The number was impacted by “charges related to our actions to streamline operations and reduce costs,” the company said, which includes reducing its real estate footprint and making changes to its podcasting business. These charges had been excluded from Q2 guidance. Excluding these charges, the company reported an operating loss of €112 million ($124).
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Gross margins hit 24.1 percent, compared to guidance of 25.5 percent and total operating expenses grew to €1 billion ($1.1 billion), up 13 percent year over year. The company’s revenue reached €3.2 billion ($3.5 billion), in line with its guidance.
Amid escalating costs, Spotify has been undertaking several cost-cutting measures over the past 12 months. 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 been making programming cuts, including ending its exclusivity podcasting deal with Prince Harry and Meghan Markle in June. Spotify also merged podcasting studios Parcast and Gimlet into a single division, after canceling 10 shows from the two companies in the fall. When it comes to deal-making in the future, Spotify CEO Daniel Ek says the company now has more data, compared to when they first started in podcasting, to focus on shows that resonate with subscribers.
“We probably overpaid relative to what we should have done,” Ek said about the company’s entrance into podcasting. “And so we’re we’re coming at this with a process of right-sizing some deals, doubling down on some of the things that worked really nicely and then stepping out of some deals and relationships that hasn’t worked out.”
The company is still launching new content, including a new weekly podcast with Trevor Noah, which is not exclusive to Spotify. And advertising trends in the podcast business are improving, with Spotify reporting revenue growth growing more than 30 percent year over year.
Spotify announced Monday that it would be increasing prices on its premium plan, bringing the cost to $10.99 per month. The price increase makes the streaming service the same cost as Apple Music and Amazon Music (for non-Prime members). Existing subscribers will receive a one-month grace period and Spotify says it is unlikely to impact revenue per user much until the end of Q3 and then have a “meaningful impact” in Q4 and onward.
For next quarter, the company is forecasting 572 million monthly active users, an increase of 21 million from Q2 and 224 million subscribers, an increase of four million. As for whether the price increases will create churn, CFO Paul Vogel said there may be some impact, but the company still expects net additions through Q3 of this year to be higher than at the same point last year.
“Our data would suggest that historical price increases have had minimal impact on growth. But given the breadth of this change and the significant outperformance in the first half of the year, there is some conservatism baked into our outlook for Q3,” he said.
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