Spotify pulled in more than new listeners than it expected for the fourth quarter, as the streamer narrowed its net loss and took a charge related to mass layoffs at the end of 2023 to cut expenses.
For the fourth quarter of 2023, the company reported revenue of €3.67 billion, up 16% and in-line with guidance, and a net loss of €70 million — better than expected due to lower marketing and personnel costs — compared with a net loss €270 million in the year-earlier period.
In Q4, Spotify add 28 million total monthly active users overall, to reach 602 million, and gained 10 million Premium subscribers to stand at 236 million. Previously, Spotify had told investors it expected to add 27 million total monthly active users and 9 million subscribers in Q4.
Spotify’s operating expenses grew 2% year-over-year primarily from €139 million in charges related to its layoffs in December. Gross margin for the quarter was 26.7%, up from 25.3% a year earlier, which the company said reflected improving trends in its podcasting and music businesses partially offset by audiobooks start-up costs and severance-related charges.
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Premium revenue grew 17% year over year while ad-Supported revenue grew 12% to an all-time quarterly high of €501 million, according to Spotify. Music advertising revenue grew double-digits while podcast advertising revenue “grew in the healthy double-digit range, driven by significant growth in sold impressions across original and licensed podcasts and the Spotify Audience Network, partially offset by softer pricing,” the company said. CFO Paul Vogel, who is exiting the company, told analysts that the podcast segment is expected to swing to positive gross margin in 2024.
For the first quarter of 2024, Spotify expects to end with 239 million Premium subs (up 3 million sequentially) and total MAUs of 618 million (up 16 million). The company’s anticipates Q1 total revenue of €3.6 billion and gross margin at 26.4%.
CEO Daniel Ek, on the Q4 earnings call, touted Spotify’s 2023 record user growth: MAUs increased by a net 113 million users and Premium subscribers had full-year net additions of 31 million. The focus in 2024, he said, is to better monetize that growth.
In December 2023, Spotify announced that it was slashing 17% of its workforce, a round of layoffs cutting about 1,500 jobs from its global headcount of 9,000. “I decided that a substantial action to rightsize our costs was the best option to accomplish our objectives,” Ek wrote in a Dec. 4 memo to staffers. The cuts are deeper than Spotify’s two prior waves of layoffs in 2023: In January, Spotify laid off 600 workers eliminating 600 jobs then in June laid off another 200 employees in a reorg related to its podcasting business.
On the podcast front, Spotify has pivoted away from acquiring exclusive platform rights and instead has adopted a strategy of widely distributing shows to maximize audience reach. Last Friday, the company announced a multiyear deal renewal with Joe Rogan — who hosts its No. 1 podcast — worth as much as $250 million. Under the pact, “The Joe Rogan Experience” is ending its three-year exclusive run on Spotify, while Spotify will manage distribution and ad sales for the popular podcast.
Ek didn’t call out Spotify’s new nonexclusive deals with Rogan and Alex Cooper (host of “Call Her Daddy”), but said on the call, “We have doubled down on the [podcast] deals that worked, and have gotten out of many of the deals that didn’t work.”
In discussing the strategy, he said Spotify’s exclusive podcast deals were not as positive on the ad side and noted that creators want to be on as many platforms as possible. With the nonexclusive deals, “we really become aligned with the creator,” said Ek.
Ek also took the opportunity to reiterate his criticism of Apple’s App Store policies, saying the tech giant’s 30% cut of transactions prevents Spotify from generating incremental revenue through things like audiobook sales. Last month, Apple claimed to comply with a ruling in an antitrust case brought by Epic Games by allowing app developers to direct users to “alternative, out-of-app purchasing mechanisms.” But Apple will apply a 27% commission to transactions through third parties; Spotify blasted Apple’s move as “outrageous” and said it failed to address “the court’s efforts to enable greater competition and user choice.”
