Spotify is taking major steps to secure the top spot in the streaming market as it announces profits and podcast acquisition plans.
Announcing its fourth-quarter earnings, Swedish streaming juggernaut Spotify revealed that its monthly active users increased to 207m from 191m compared to Q3, with premium paid subscribers now at 96m, a quarterly increase of 9m.
Spotify added that this quarter saw it report an operating profit (€94m) for the first time. In a letter to shareholders, it said: “For the first time in company history, operating income, net income and free cash flow were all positive.” The firm did temper this with a warning of a loss of €200m to €360m in its forecast for 2019.
Growing user base
Looking at the improved user growth, the company put this down to improved retention rates and expansion into new global markets, including Latin America. The company expanded across countries in North Africa and the Middle East last November. Spotify Wrapped, the yearly personalised playlist of a user’s top songs, was a roaring success, with 28m users visiting the site in a single week. Collaborations with Google Home also saw user numbers boosted.
Spotify reported revenues of €1.495bn for the fourth quarter of 2018, a year-on-year increase of 30pc and an 11pc increase on Q3. Operating expenses of €305m in the fourth quarter of last year were down 17pc on last year, which resulted in the aforementioned operating profit of €94m. Average revenue per user fell 7pc year on year to €4.89, which is largely due to an increase in popularity of family and student subscription plans.
Betting big on podcasting
The company also announced two major acquisitions, podcast network Gimlet Media and podcast creation and distribution platform Anchor. According to Recode, Spotify is paying approximately $230m for Gimlet, but it is not yet known how much Anchor cost the firm.
CEO of Spotify, Daniel Ek, wrote about the acquisitions in a blogpost: “Video is about a trillion-dollar market. And the music and radio industry is worth around a hundred billion dollars. I always come back to the same question: are our eyes really worth 10 times more than our ears? I firmly believe this is not the case.
“With the world focused on trying to reduce screen time, it opens up a massive audio opportunity.” The company added that it has other podcasting acquisitions in mind and hopes to spend more on the medium this year. Ek said that podcast listening will eventually make up more than 20pc of the company’s usage.
The firm told investors: “Growing podcast listening on Spotify is an important strategy for driving top-of-funnel growth, increased user engagement, lower churn, faster revenue growth and higher margins.
“We intend to lean into this strategy in 2019, both to acquire exclusive content and to increase investment in the production of content in-house. The more successful we are, the more we’ll lean into the strategy to accelerate our growth, in which case we would update guidance accordingly.”
Updated, 12.01pm, 7 February 2019: This article was updated to amend an incorrect figure in relation to Gimlet Media, which Spotify was reported by Recode to be paying $230m for, not €230m.