Spotify adds fewer total users than expected
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4 min read . Updated: 28 Jul 2021, 06:11 PM IST - Streaming audio service says ad revenue more than doubles, helped by podcasts from Joe Rogan and Bill Simmons
Spotify Technology SA’s advertising revenue more than doubled in the most recent quarter, helped by growth in its podcast business, but the company added fewer total users than expected.
Though at-home listening took off during the lockdowns, executives have said the company faces uncertainty as the emerging markets it is relying on for new user growth endure Covid-19 spikes and listeners in more established markets emerge from lockdowns and move on to activities outside their homes.
As of the quarter ended June 30, Spotify had 365 million monthly active users, up 22% from a year earlier and just shy of the company’s forecast. The company said Covid-19 weighed on performance in several markets, and it paused marketing campaigns in some instances. Meanwhile, paying subscribers, its most lucrative type of customer, rose 20% to 165 million, at the high end of the company’s guidance range.
Average revenue per user for the subscription business in the quarter slipped 3% to €4.29, the equivalent of $5.07, as the company continued to attract new subscribers through discounted plans and charged lower prices in newer markets such as India and Russia. Excluding currency impacts, the company said ARPU was flat, and benefited from recent price increases in developed markets.
Last fall, Spotify began raising the price of its family plan in several markets. During the previous quarter, it extended rate increases to 25 more markets, including in Europe, Latin America and Canada, before notifying users in the June quarter about price adjustments in another 12 markets, including for the family plan in the U.S. and the U.K.
Overall revenue from subscriptions rose 17% to €2.06 billion. Advertising revenue rocketed 110% to €275 million, growing for a fourth consecutive quarter after sliding in the first half of last year amid pandemic headwinds. Advertising, which typically has accounted for around 10% of overall revenue, has become a particular growth area as the company expands its podcast business. During the quarter, it made up nearly 12% of total revenue.
The company pointed to triple-digit year-over-year gains at existing Spotify studios—The Ringer, Parcast, Spotify Studios, and Gimlet—and growth from its acquisition of podcast ad firm Megaphone. The company also said the rollout of Spotify Audience Network, which allows advertisers to buy against audiences versus specific shows, helped it triple the podcast inventory it can monetize.
Spotify now has 2.9 million podcasts available on its service, up from 2.6 million in the prior quarter.
The company said the Joe Rogan Experience, which is exclusively available on Spotify, continues to outperform expectations, and that Ringer shows including the Bill Simmons Podcast helped increase consumption significantly around the NBA playoffs. Also during the quarter, Spotify signed exclusive licensing deals for Call Her Daddy and Dax Shepard’s Armchair Expert.
Facing increasing competition in podcasts from rivals including Amazon.com Inc. and Apple Inc., Spotify during the quarter introduced a platform for podcasters to charge a subscription fee. The company said it won’t charge for use of the platform, nor collect any portion of podcasters’ subscription revenues for the first two years.
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In all for the second quarter, revenue climbed 23% to €2.33 billion, in line with the company’s expectations.
Spotify posted a loss of €20 million or 19 European cents a share, compared with a loss of €356 million, or €1.91 a share, in the year-earlier period. While the company has periodically reported a quarterly profit, executives have said it would continue to give priority to growth—attracting new subscribers and investing in podcasting.
Free cash flow—a measure of the cash a company generates from operations, and viewed by many investors as a proxy for performance—was €34 million, down from €41 million a year ago, but up from €27 million in the previous quarter.
For the third quarter, Spotify guided for monthly active users to grow to between 377 million and 382 million and that premium subscribers would rise to between 170 million and 174 million. It said it expects to generate revenue of €2.31 billion to €2.51 billion.
For the year, Spotify again lowered its guidance for monthly active users, to between 400 million and 407 million. It narrowed its subscriber outlook to between 177 million and 181 million.
News Corp’s Dow Jones & Co., publisher of The Wall Street Journal, has a content partnership with Spotify’s Gimlet Media unit.
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