Spotify Hits 124 Million Paid Subscribers Thanks to Record Fourth Quarter

Daniel Ek  -  Code Conference - Publicity-H 2018
Asa Mathat for Vox Media

"This was the highest net add quarter we’ve ever experienced," said the music streaming giant and touted its podcast business, but the stock fell on lower-than-expected financials for the fourth quarter.

Music streaming giant Spotify on Wednesday said it swung to a fourth-quarter operating loss as it grew its user base to 124 million premium, or paid, subscribers and 271 million total active monthly users as of the end of 2019.

"This was the highest net add quarter we’ve ever experienced," the company said.

It highlighted that promotions, including a "3 months on us" introductory offer, helped drive user growth, but also affected revenue. Spotify’s stock in early trading fell 4.6 percent as Wall Street analysts focused on lower-than-expected financials.

"Spotify's fourth quarter came in slightly ahead on subs (both total and premium), slightly below on revenue (driven by average revenue per user, largely impacted by three-month free trial), well below on earnings metrics (revenue miss amplified by expenses, including social costs related to share compensation on high end of year stock price)," summarized Bernstein analyst Todd Juenger. "As one investor said to us 'it's hard to get credit for subs, when you give the product away.' That is obviously worded in a purposely provocative way, but not a bad summation of how we expect the market to react."

Spotify's subscriber reach at the end of 2019 compared with 113 million premium and 248 million total active monthly users as of the end of September. Management on its earnings call said user growth has been re-accelerating even in the firm's most mature markets, such as the Nordics.

The company's fourth-quarter user figures met or exceeded its own forecasts for ending 2019 with 120 million to 125 million premium users and 255 million to 270 million monthly active users.

The company, led by Spotify CEO Daniel Ek, reported a fourth-quarter operating loss of $84.8 million (77 million euros), compared with an operating profit of 94 million euros in the year-ago period. Quarterly revenue of 1.9 billion euros ($2.0 billion) grew 24 percent. Operating expenses in the latest period jumped 80 percent to 551 million euros ($607 million).

"We continue to see exponential growth in podcast hours streamed (up approximately 200 percent year-over-year) and are now seeing clear indications that podcast usage is driving increased overall engagement and retention," Spotify said. "We have seen early indications that our investments in podcasts are having a positive impact on conversion of free to paid users. Overall, the business performance remains strong, and we believe we are well positioned for growth in the coming year."

Spotify on Wednesday also predicted that its user base would end the current first quarter with 143-153 million premium subscribers and 328-348 million total active monthly users.

Asked on the call about Spotify's competitive position versus the likes of Apple or YouTube, Ek said "we feel really good" about where the company is and said that based on estimates the firm "should be the largest U.S. audio streaming service." 

He concluded the call by saying that Spotify was seeing "so many positive indicators in the business, including top of the funnel acceleration, improvement in retention and churn, and positive engagement trends."