Spotify Posts Smaller Quarterly Loss, Hits 87 Million Paid Subscribers

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

The music streaming service now has 191 million active monthly users as it looks to grow its advertising and video revenue.

Spotify on Thursday reported a smaller third-quarter operating loss and said it grew its user base to 87 million premium subscribers and 191 million total active monthly users.

Premium users were up from 83 million in the second quarter and 62 million in the year-ago period, while active monthly users were up from 180 million in the second quarter and 150 million in the year-ago period.

"Growth continues to be healthy across our family and student plans, and the strong retention characteristics of this base continue to drive churn lower," the Swedish music streaming service said. "This quarter we offered to verified student subscribers in the U.S. our first-ever multi-partner bundle consisting of Spotify, Hulu and Showtime for $4.99 per month. In addition, we expanded our 3-for-99 cents intro offer campaign for our student plan globally during August and September to line up with the back-to-school season."

Continued subscriber growth, key to eventual profitability at Spotify, helped boost quarterly revenue 31 percent over the year-ago period to €1.35 billion ($1.54 billion). The company's operating loss of €6.0 million ($6.8 million), compared with an operating loss of €73 million in the third quarter of 2017.

When looking beyond operations, Spotify posted its first-ever quarter of positive net income thanks to a big tax-related benefit from the increased value of the company's 9 percent stake in Chinese online giant Tencent's Tencent Music. Spotify had previously warned though that the resulting profit, which amounted to €43 million ($48.7 million), would be a one-time event.

Spotify's profit margin improved in the latest quarter "largely due to shortfalls in hiring, which have continued into the fourth quarter." Added the company: "However, we intend to accelerate the pace of investment in research and development (R&D) and content in 2019 in order to capitalize on near-term and long-term growth opportunities. If we are successful in accelerating our investments in R&D and content, these investments are likely to reduce our operating margins for the foreseeable future."

Veteran entertainment executive Dawn Ostroff earlier this year joined Spotify as chief content officer to drive content partnerships for the streamer across music, audio and video. The Stockholm, Sweden-based streaming service, led by founder and CEO Daniel Ek, went public in early April.