Spotify shares shot up in Tuesday trading after the Swedish streaming company reported that expanded video offerings, growing audiobook popularity and AI-generated playlists helped it swing to a profit for the first three months of the year, even as its subscriber and user growth slowed.
The company also said it is gearing up to offer new options, like an audiobook-only tier and a music-only tier, to reach more consumers and expand its user base.
The company’s revenue results topped Wall Street expectations, as did its revenue forecast for the current quarter, sending its US-listed shares up $34.20, or 12.6%, to $306.44 in morning trading. Spotify Technology SA closed Monday at $272.24, up 44% since the start of the year.
Here’s a quick look at the results:
Total Revenue rose 19.5% from last year’s first quarter to $3.86 billion. Analysts had forecast $3.88 billion per share, according to Zacks Investment Research.
Net Income of $212.6 million reversed a year-ago loss of $244 million.
Earnings per share of $1.05 handily topped Wall Street’s prediction for earnings of 66 cents per share, according to Zacks.
Subscribers: Total monthly active users grew 19% year-over-year to 615 million, up from 15% growth a year ago but pared from the 23% growth seen in the fourth quarter of 2023. The figure was also short the company’s guidance for the quarter by about 3 million.
Premium subscribers — those who pay for the service — rose 14% from last year to 239 million. That’s down from 22% growth in the 2023 first quarter. Ad-supported monthly active users increased 22% to 388 million.
The company attributed the lower-than-expected user growth to “organizational change,” a veiled reference to its massive layoffs in December, and “moderated marketing activity.” The streamer ended the quarter with 7,721 employees, down 16.5% from the 9,248 it reported at the end of 2023. It recorded $89 million in “social charges,” due to the layoffs, which it said were “more than offset” by lower personnel costs and marketing spending.
However, on the conference call to discuss the results, CEO Daniel Ek acknowledged that the job cuts did “disrupt” the company’s operations more than expected.
Ad-supported revenue grew 18% from last year, to $419.7 million, but was down from $540.7 million in the fourth quarter. The company said music advertising revenue grew by “healthy double digits” from last year, driven both by growth in impressions and higher prices. Podcast advertising revenue rose even faster, Spotify said, helped by its moves to license popular podcasts like “The Joe Rogan Experience,” across other platforms.
Among the stock catalysts was a forecast for revenue of $4.1 billion, topping analyst estimates for $4.02 billion, according to Zack’s.
Ek would not directly address questions about planned subscription price increases during the call — U.S. prices are expected to rise by $1 to $2 — but he said that the company is exploring new options that go beyond just hiking prices as a way to expand and take advantage of changes in the market. “You’ve seen us over the years to add more ways for consumers to choose different plans on Spotify,” he said. “It originally started off by being sort of just a single person plan, and it then went to a family plan, and then we added duo and then we added various ways of paying for these family plans, for instance.”
He noted that in some Southeast Asian markets, Spotify now offers day passes and weekly passes, suggesting similar options could spread to other, larger markets. “We want to offer as much flexibility as possible in this next stage of Spotify,” he said, “because we’re at the size where we want to appeal to an even larger base of consumers to turn to one of our subscription offerings.”
An audiobook only tier, for instance, is one way to expand the options available for customers. “You should also expect to see a music only tier, as well,” Ek said. “All of this is in line to just offer as much flexibility to consumers as possible for them to pick whatever plan they feel offers the best value-to-price ratio for them.”
Ek also declined to directly discuss the potential effects of pending US legislation that could force the sale or ban of TikTok, but said the hugely popular app has impacted the entire industry, including Spotify.
“We are focused on winning discovery, and we’re going to add as many ways that we can to improve the discovery of Spotify,” for instance the addition of music and podcast videos in the last quarter, he said.
“You’re also going to see music clips show up in a bigger way, where artists are using ways of short form storytelling video to tell a story around their album, or tell fans about a new album drop that they should be pre-saving,” he said as an example.
In the long term, these efforts will have a financial impact because the more Spotify can improve engagement, “the more value we’re creating, the more ability we will have eventually to capture some of that value through price increases or more inventory, that then drives advertising, which, of course, is to the benefit, not just of Spotify, but is the benefit of the entire creative community,” Ek said.
Ek told Reuters in an interview that the company is going to “add back some marketing spending” this year. “Because we want to keep on having the growth and we saw that in some territories, we may have pulled back a little bit too much.”
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