Spotify adds millions of new users but a profit is still distant

27 Jul 2018

Image: Denis Mikheev/Shutterstock

Spotify’s second earnings report as a public company shows user growth increasing across the board.

Spotify’s second-quarter earnings can be succinctly described as a mixed bag.

While it reached 83m paid subscribers (up 40pc year on year and 8m from Q1), it also saw an operating loss of €91m this quarter.

The weight of its payments to artists and record labels means profitability is not likely in the short term for the Swedish firm.

GDPR was an obstacle

Total revenue for Spotify was up 26pc year on year at €1.27bn. GDPR caused an overall lag in revenue growth across European markets, but the company said it was largely past this issue.

Chief financial officer Barry McCarthy told media: “GDPR posed mostly a timing challenge for us, mostly with ad holding companies, exclusively in the free business. It was an opportunity for them to try to negotiate for a broader set of information sharing rights, and we weren’t willing to give them.”

A slight slowdown in ad-supported monthly active user growth was also reported, with just a 2pc increase reported quarter to quarter.

Ads only accounted for a mere €123m in revenue but a new feature called ‘Active Media’ that launched in Australia could help with this. Non-premium users in the country will be able to skip ads and Spotify will then tailor the ads in future based on their preferences. It said: “We believe this system will better enable us to understand what drives intent and engagement, and ultimately allow us to personalise the ad experience in the same way as our most popular playlists.”

Family plans provide big wins

Looking at premium subscriber growth, Spotify’s family plan subscription offer was a primary source of new subscribers, and retention is also strong.

A bundle offer with Hulu in the US also pulled in a rake of new paying users. The bundle promotions meant that Spotify’s average revenue per user dropped 12pc this quarter, but the offers could be a successful long-term strategy.

CEO Daniel Ek told investors that bands and artists are using their Spotify data in new, useful ways. “And we’ve never before been at a place in time where you could make as many informed decisions and understand your audience as well as you can do now as an artist. And we’re seeing a lot of these artists making much smarter decisions on the basis of it.

“As an example, here I have an artist like Metallica who changes their set list on a city-by-city basis just by looking at Spotify data to see which of the most popular songs happen to be in that city. And there are many, many other examples.”

Spotify faces fierce competition

Apple Music is Spotify’s most formidable rival, with approximately 40m subscribers recorded in April of this year. This is likely to have increased and there is also speculation that Apple’s service may have more users in the US at this stage.

In terms of the future outlook for Spotify, it anticipates 85m to 88m premium subscribers by the third quarter, with 86m currently being touted by analysts.

While investor confidence in the company is steadying, the music streaming market is increasingly competitive, with Google, Pandora, Apple and others in the running.

Ellen Tannam was a journalist with Silicon Republic, covering all manner of business and tech subjects