Spotify’s stock price leaped 15% today (Oct. 28) as the music streaming service delivered a surprise profit for its third quarter.
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The company reported a gross profit of €441 million (roughly $490 million) on €1.73 billion (about $1.92 billion) in revenue, marking just the second time Spotify has been in the green as a public company. Revenue grew 28%, while profit increased by 29% compared to the same period last year. The company also said free cash flow, a popular proxy for financial health, remained positive for the eighth consecutive quarter.
User growth, in particular, was music to shareholders’ ears. Spotify now boasts 248 million monthly active users (MAUs) and 113 million subscribers, with its paid user base growing 31% year-over-year. “Net Subscriber growth exceeded our expectations and was led by strong performance in both Family Plan and Student Plan,” two of the company’s discounted offerings, Spotify said in prepared remarks.
Spotify also launched in India to much fanfare (and controversy) and now has more than 2 million users there. By comparison, Apple Music had about 50 million paying subscribers at the end of 2018. Spotify transformed music listening forever when it launched in 2008. Make spotify premium free. Discover, manage and share over 60 million tracks, including more than 1.9 million podcast titles, for free, or upgrade to Spotify Premium to access exclusive features for music including improved sound quality and an on-demand, offline, and ad-free listening experience. Spotify currently has over 180 million active listeners. Discovering new music and artist has never.
- Amazon Music, the streaming music service from the e-commerce and cloud giant that competes against the likes of Spotify and Apple Music, announced a milestone in its growth today: it has passed.
- In 2015, The Fader reported huge news for Spotify. Out of its 75 million monthly users, 20 million are paying customers. A 26.6% conversion rate is staggering on freemium products. As Jason Cohen says: 'A really good conversion rate for free-to-paid is 4%, like Dropbox. Awesome for them, but normal rates are more like 1%, and that's if users are reasonably active.' If 1% is average,.
Due to the strong listener growth, Spotify maintained its sizable lead in the music streaming industry at large. Competitor Apple Music counts just 60 million subscribers (paying and on free trials) according to figures disclosed in June. Meanwhile, Amazon’s Unlimited and Prime Music had 32 million users as of April, according to the Financial Times (subscription).
Spotify’s third quarter gave investors respite from a rough two months—shares had fallen from $160 to $112 before rebounding on the earnings report. At the time of writing, Spotify shares were trading for $137.
The company said it has been encouraged by advances in podcast listening. “We continue to see exponential growth in podcast hours streamed (up approximately 39% Q/Q) and early indications that podcast engagement is driving a virtuous cycle of increased overall engagement and significantly increased conversion of free to paid users,” Spotify wrote. Still, only 14% of the company’s MAUs have started listening to podcasts, it noted.
Despite an optimistic outlook—the company’s leaders “feel very good about [their] competitive position in the market”—guidance for the fourth quarter isn’t quite as rosy. Although it anticipates expanding to 266 million MAUs and 123 premium subscribers, Spotify expects an operating loss of €133 million for the quarter. The company did not provide a reason for the expected losses, but they can likely be attributed to reinvestment as Spotify develops its presence in emerging markets.
While Spotify has consistently grown its audience, the company still hasn’t proven it can reliably translate listeners into profits. Although it’s ahead of Apple and Amazon, the company doesn’t enjoy a financial cushion from other business lines like the iPhone or Amazon Web Services. So, Spotify remains the king of music streaming, but uneasy lies the head that wears the crown.
Spotify has announced its Q3 2019 financial and user metrics, revealing that it grew its total monthly active users (MAUs) to 248 million — up 30% on the 191 million it reported for the same period last year, and up 7% on the 232 million from the previous quarter.
Amazon music android app louder than spotify. The music-streaming giant is maintaining a roughly 45% ratio of premium to ad-supported subscribers, claiming 113 million paying users for the past quarter, up 31% from 87 million in the Q3 2018 period — and marginally surpassing the high-end analyst estimates.
Spotify attributed some of its net premium subscriber growth to the “strong performance” of its student and family plans, the latter of which received some notable upgrades in the past few months. Back in August, for example, Spotify introduced new content filters that allow parents to control what songs their children can access, in addition to a new family-focused playlist.
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In terms of financials, Spotify reported revenue of €1.7 billion ($1.9 billion), up 28% year-on-year (YoY) and 4% quarter-on-quarter (QoQ). The company also turned an operating profit of €54 million ($60 million), compared to a small YoY and QoQ loss on the previous figures — this was driven in part by a higher gross profit and a “lower-than-expected” spend across areas including artist marketing, original content promotion, and R&D. However, Spotify anticipates returning to a loss for Q4 2019, estimating that its operating loss will fall somewhere between €31 million and €131 million ($34 million – $145 million).
Spotify also used its Q3 earnings report to announce that chief financial officer (CFO) Barry McCarthy will be leaving the company in January after nearly five years, with Paul Vogel — current head of FP&A, treasury, and investor relations — taking over.
Retention
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Though Spotify’s bottom line is of course an important factor for Wall Street, it’s the company’s longer-term prospects relating to its user numbers that are of particular note, specifically in relation to the competition. Back in June, Apple announced that Apple Music had 60 million users, a figure that has likely increased a bit in the subsequent four months. But globally, Spotify continues to dominate both in terms of overall user numbers and those on a paid plan.
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“Relative to Apple, the publicly available data shows that we are adding roughly twice as many subscribers per month as they are,” Spotify said in its report. “Additionally, we believe that our monthly engagement is roughly 2 times as high and our churn is at half the rate.”
Despite past criticism over Spotify’s continued adoption of a free streaming plan, the plan remains an important tool for the company, allowing it to lure new users on board so it can persuade them to upgrade to a paid tier. Premium subscriptions continue to be the main revenue driver for Spotify, representing more than 90% of its income in Q3.
“We rolled out a number of tests in Q3 with the goal of immersing new users in the product functionality faster,” the company said. “It’s still early, but we are encouraged by the improvements we’ve seen in retention to date. Our belief is that a better onboarding experience leads to increased engagement, which leads to better retention, conversion, satisfaction, and ultimately, lifetime value.”
Spotify volume changes mobile app. Finally, a growing part of Spotify’s retention plans include podcasting, which it has invested heavily in over the past year. As such, Spotify broke out podcast-specific numbers for its Q3 financials, revealing that 14% of its users listened to a podcast during the last quarter, which equates to roughly 35 million people.
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