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Audio streaming giant Spotify ended 2022 with better-than-expected user growth, but its latest quarterly loss widened amid investments in podcasting growth, among other factors. The company said on Tuesday that it ended the fourth quarter with 205 million premium, or paying, subscribers, up from 195 million as of the end of the third quarter and ahead of its own target, “aided by promotional intake and household plans.”
Spotify also disclosed that it hit 489 million monthly active users (MAUs) as of the end of December, up from 456 million at the end of September. “Net additions of 33 million represented our largest-ever fourth-quarter growth,” the firm highlighted.
The Stockholm, Sweden-based company, led by CEO Daniel Ek, had previously forecast it would wrap up the year with 202 million premium subscribers and 479 million MAUs. On Tuesday, it predicted it would end the current first quarter with 207 million premium subs and 500 million MAUs.
Spotify’s stock rose about 3 percent in pre-market trading on Tuesday after the quarterly results update.
Fourth-quarter advertising revenue at the firm continued to grow despite slowing ad momentum at some digital giants amid fears of a recession. Spotify’s quarterly ad-supported revenue rose 14 percent year-over-year, or 4 percent on a constant-currency basis, to 449 million euros ($486 million), driven by podcasting.
“Ad-supported revenue grew 14 percent year-over-year and accounted for 14 percent of total revenue,” Spotify said. “On a global basis, our music advertising revenue grew mid-single digits year-over-year, reflecting double-digit year-over-year growth in impressions sold, partially offset by softer pricing due to the current macroeconomic environment. Podcast revenue grew in the mid-30 percent range year-over-year, reflecting healthy double-digit year-over-year growth in impressions sold and pricing. The Spotify Audience Network saw healthy double-digit quarter-over-quarter growth in participating publishers, shows and advertisers.”
Total revenue for the final quarter of 2022 jumped 18 percent to 3.17 billion euros ($3.43 billion). But its loss widened from 39 million euros ($42 million) to 270 million euros ($292 million) due to increased expenses amid “higher personnel costs, primarily due to headcount growth, and higher advertising costs,” as well as the negative impact of currency movements.
Fourth-quarter operating expenses grew 44 percent overall, or 36 percent on a constant currency basis, “driven primarily by higher personnel costs related to headcount growth (global ad sales team, platform investment and acquisitions) and higher advertising expenses (emerging markets, Gen Z,” Spotify said. “These investments largely reflect various growth initiatives that were greenlit toward the end of 2021 and the impact of recent acquisitions, such as Podsights, Findaway, Sonantic, Chartable, Whooshkaa and Heardle.”
Last week, Spotify unveiled that it would be laying off around 6 percent of its workforce, or about 600 people, as the streaming audio giant became the latest company in the technology space to cut back on staff amid a challenging economy. Ek on an analyst call discussed the recent job cuts as pointing to a possible question mark over steep investments in 2022.
“I’m sure some of you are wondering if we believe that that investment was a mistake, and the answer is no. And yes. I still believe it was the right call to invest and I will do it again,” he argued. But Ek added the business climate had changed for Spotify and other tech giants. “And in hindsight, I probably got a little carried away and over-invested relative to the uncertainty we saw shaping up in the market. So we are shifting the focus on tightening our spend and becoming more efficient.”
Spotify CFO Paul Vogel addressed a question about when Spotify might break even, but didn’t point to a direct timeline. “I think you can expect to see a meaningful improvement in the operating loss in (20)23, relative to (20)22. So we expect that to be pretty significant. Again, as Daniel mentioned, we invested a lot in 2022. So we’ll get some of the leverage on top of that investment … Exactly when we break even we haven’t said yet, but we feel like we’re on a good path.”
Vogel added in response to another question that Spotify would be “more efficient” with its marketing expenditures in 2023 as part of a larger drive to be more disciplined with corporate spending overall. He also declined to put a dollar figure on cost savings from laying off around 600 employees. “There really wasn’t any specific area, it was pretty broad-based across most of the divisions within Spotify,” Vogel added.
A previous round of cuts hit staff working on canceled shows from in-house podcast studios Gimlet and Parcast. The company in its latest financial results predicted it would take severance costs of $38 million-$49 million in connection with the layoffs.
As part of that announcement, one of Spotify’s most high-profile executives, chief content and advertising officer Dawn Ostroff, said she would depart the company “as part of a broader reorganization,” becoming a senior adviser to help the company with the transition.
“As we evolve and grow as a business, so must our way of working while still staying true to our core values,” Ek wrote in a blog post back then. “In 2022, the growth of Spotify’s operating expenses outpaced our revenue growth by two times. That would have been unsustainable long-term in any climate, but with a challenging macro environment, it would be even more difficult to close the gap.” He added: “Personally, these changes will allow me to get back to the part where I do my best work—spending more time working on the future of Spotify — and I can’t wait to share more about all the things we have coming.”
Wells Fargo analyst Steven Cahall wrote in a first reaction: “Fourth-quarter margins topped guidance and Street on strong subs, providing the greenshoots bulls want. … We see ’23 as pivotal for margin progress.”
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