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Music-streaming giant Spotify said on Wednesday that it ended the second quarter with 165 million premium, or paid, subscribers.
It had ended the first quarter with 158 million and forecast 162-166 million by the end of June.
Spotify also reached 365 million total monthly active users (MAUs), which came in below its guidance range of 366-373 million, the Wednesday earnings update showed. The firm had ended the first quarter with 356 million.
“Most of our major metrics – subscriber growth, revenue, gross margin and operating income – performed better than expected this quarter,” the company said. “MAU performance was slower than expected due primarily to lighter user intake during the first half of the quarter. COVID-19 continued to weigh on our performance in several markets, and, in some instances, we paused marketing campaigns due to the severity of the pandemic. Separately, a user sign-up issue associated with a global third-party platform created unexpected intake friction, which also impacted MAU growth. This issue has since been resolved.” On Wednesday’s earnings call, management said that this issue was one with email verifications that caused a 1-2 million hit to MAUs.
“Overall, we saw a return to better growth patterns in the back half of the quarter,” the firm highlighted. CEO Daniel Ek on the call cited Brazil, India and South East Asia as lagging MAU expectations in the latest quarter, along with lower adoption rates in newer markets. All these markets have been hit hard by COVID-19, he said. With the company feeling it has moved beyond the MAU hit, “I feel really, really good about what we are seeing,” Ek said.
Premium subscriber trends in the second quarter were driven by a “strong performance of our Standard product across both Europe and North America,” Spotify said. “Compared with the last few years, we shortened our mid-year promotional campaign cycle from six weeks to four weeks, and performance exceeded expectations. Additionally, we added or expanded several major promotional partnerships in the quarter. … Additionally, we announced a new promotion with TikTok, which launched in mid July.”
Spotify now estimates it will end 2021 with 177-181 million premium subscribers and 400-407 million monthly average users.
Asked if the weakness in MAUs so far in 2021 posed a risk to paying subscriber trends, Ek said the softer momentum looks more significant compared with a strong 2020. He said he felt good about the chance to get to 1 billion-plus users over time as there is “plenty of runway left.”
Stockholm-based Spotify said advertising revenue, which had returned to growth in the third quarter of 2020 following a coronavirus pandemic hit, continued to rise in the most recent quarter, jumping 110 percent compared with the year-ago period.
Podcasting also continues to be a key focus for the company, which ended June with 2.9 million podcasts on its platform, up from 2.6 million as of the end of March.
“Ad-supported revenue outperformed our forecast, driven by strong underlying demand (benefiting sellout and pricing) and aided by favorable comparisons versus last year’s COVID-19 lows,” the company said. “The strength in ad-supported revenue was led by our direct and podcast sales channels, with the latter benefiting from a triple-digit year-over-year gain at existing Spotify studios (The Ringer, Parcast, Spotify Studios, and Gimlet) along with contributions from the Megaphone acquisition, the exclusive licensing of the Joe Rogan Experience and Higher Ground,” the production company of President Barack Obama and Michelle Obama. Ringer shows include the Bill Simmons Podcast.
Ek said on Wednesday’s call he previously “didn’t spend much time” on advertising, “but it is becoming impossible to ignore,” given it is fast emerging as “a second big revenue driver” for Spotify. “It’s clear to me that the days of our ad business accounting for less than 10 percent of our total revenue are behind us.” He added that going forward, “I expect ads to grow to be a substantial part of our revenue mix.”
He also said the main constraint to ad growth is not demand from marketers, but the company’s ability to supply more ad inventory.
Spotify recently launched its Clubhouse competitor, the Spotify Greenroom, and opened up applications for a creator fund for live audio creators on the platform. The launch came three months after Spotify acquired Betty Labs, the developer behind the social audio app Locker Room. The redesigned live audio feature, Greenroom, is available in more than 135 markets on iOS and Android and allows any Spotify user to host or participate in live rooms.
Asked about Spotify’s interest in becoming more involved in live events, Ek said “we have been in the space for quite some time,” but declined to comment on any new offers or services that may be in the works.
Spotify’s stock was down more than 5 percent in pre-market trading.
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