Spotify Grows to End 2020 With 155 Million Paid Subscribers

Daniel Ek

Spotify CEO Daniel Ek

The music streamer touts the growth and benefits of podcasts and says "the pandemic had little impact on our subscriber growth and may have actually contributed positively to pulling forward new sign-ups," but notes "increased forecasting uncertainty."

Music-streaming giant Spotify said on Wednesday that it ended 2020 with 155 million premium, or paid, subscribers, a 24 percent gain over the past year that exceeded company estimates, and 345 million total active monthly users.

That was up from 144 million premium users as of the end of September and 320 million total users. For the fourth quarter, Spotify management had predicted monthly active users (MAUs) to grow to 340-345 million, with premium subscribers to reach 150-154 million.

"In 2020, we believe the pandemic had little impact on our subscriber growth and may have actually contributed positively to pulling forward new sign-ups," the company said. "Looking ahead, we are optimistic about the underlying trends in the business into 2021 and beyond, however, we face increased forecasting uncertainty versus prior years due to the unknown duration of the pandemic and its ongoing effect on user, subscriber and revenue growth."

The firm said it saw "healthy double-digit year-over-year growth across all regions" in MAUs in the latest quarter, with net additions for the full year 2020 accelerating "to a record 74 million compared to 2019 net additions of 64 million." Also: "Based on the behavior we see when users first join Spotify, we are confident that podcast usage has been a factor in the accelerated net additions."

Stockholm-based Spotify, led by CEO Daniel Ek, said advertising revenue, which had returned to growth in the third quarter following a coronavirus pandemic hit, continued to rise in the most recent quarter, up 29 percent over the year-ago period. "Ad-supported revenue of €281 million ($338 million) outperformed our forecast," it said. "We saw strong year-over-year revenue growth across all of our regions and channels as advertiser demand continued to rebound from second-quarter 2020 lows. The strength in ad-supported revenue was led by our podcast, direct, and ad studio channels, with podcast and ad studio both growing over 100 percent."

On an earnings conference call, Ek said his team is preparing to take advantage of future opportunities. "Just look at what happened to video in 2020. Linear video fell apart as viewers flocked to on-demand," he said. "A similar shift hasn’t happened yet to linear radio, but you have long heard me say that it is coming, and I am more confident today that that’s inevitable."

Usage is also showing positive momentum. "Global consumption hours were up meaningfully in the fourth quarter," Spotify said. "We have seen per-user consumption in large regions, such as Europe and North America, return to growth, while Latin America and Rest of World show signs of improvement but remain slightly below pre-COVID levels."

The company reported a fourth-quarter operating loss of €69 million ($83 million) after a year-ago profit of €474 million. Its quarterly net loss of €125 million narrowed from a loss of €209 million in the fourth quarter of 2019. Management has made user growth its focus, accepting losses in many quarters, but the latest loss exceeded Wall Street estimates.

That and the cautious 2021 outlook drove the stock down more than 7 percent in pre-market trading.

Quarterly revenue of €2.17 billion ($2.61 billion) grew 29 percent, while operating expenses increased 17 percent, which management said was "above our plan." The reason for that was higher-than-forecasted "social charges" due to "the increase in our share price during the quarter." These charges are costs related to "payroll taxes associated with employee salaries and benefits, including share-based compensation."

Spotify has made major investments in podcasts and audiobooks as it has looked to diversify its revenue streams. Last year, for example, the firm struck a multiyear podcasting deal with Joe Rogan.

Touting the success of this strategy, Spotify said on Wednesday that it had 2.2 million podcasts on its platform in the fourth quarter, up from 1.9 million in the third quarter, with  25 percent of its users engaging with podcast content in the latest period, up from 22 percent. "We continue to see strong growth in podcast consumption, with consumption hours in the fourth quarter nearly doubling since the fourth quarter of 2019," the company said. "We have increasing conviction in the causal relationship between the growth in podcast consumption driving higher long-term value and retention among our user base."

Ek also said that media companies need to offer an array of business models to effectively serve consumers instead of using "a one-size-fits-all" approach, which at least one analyst took as a sign of potential à la carte podcast subscription offers over time.