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Spotify Posts 138 Million Paid Subscribers, Big Operating Loss in First Earnings Entirely During Pandemic

Spotify’s first full earnings period during the COVID-19 pandemic are in, and by most measures the globe’s largest audio streamer has… met expectations.

The company on Wednesday said its user base grew to 138 million paid subscribers and 299 total monthly active users during the three months ended June 30. That is an increase of 8 million premium users and 67 MAUs compared to the first quarter of 2020, which included the first couple weeks of the pandemic.

Total revenue in the second quarter was €1.89 billion ($2.22 billion in current dollars), up 13% year over year but only 2% since Q1’s €1.85 billion ($2.17 billion) tally. Of that latest figure, the vast majority came from subscriber income, which grew 17% y/y to €1.76 billion ($2.07 billion), meeting it forecast from a few months ago. Due to the effects of COVID-19, ad-supported revenue dropped 21% during the quarter to €131 million ($154 million) — though CEO Daniel Ek noted during an investors call that sales improved significantly by June.

“We had a very strong quarter,” Ek said in prepared remarks. “I’ve never been more bullish about where we are today and our future opportunity. There are still billions of people who have yet to discover on-demand music streaming or listen to a podcast, and many more we have yet to reach in markets around the world.”

Spotify said its second-quarter operating loss amounted to €167 million ($196 million), compared with €3 million ($3.5 million) a year ago and €17 million ($20 million) at the end of March. The company allowed that this metric was much higher than expected due to social costs like payroll taxes tied to salaries and benefits, plus a higher tax bill in its home government of Sweden related to stock-based compensation for employees there.

The firm’s net loss also ballooned to €356 million ($418 million), compared to €76 million ($89 million) in the year-ago period. Spotify’s premium average revenue per user (ARPU) was down 7% y/y to €4.41 ($5.18) with the dominant driver being “product mix.” Operating expenses totaled €646 million ($760 million) for the quarter, up 48% y/y and well above forecast, the firm said. Spotify currently has 6,049 full time employees globally.

Reflecting on the impact of COVID-19 to monthly activity on the service, the company said growth in North America “exceeded expectations” and India outperformed forecasts, while Latin America saw some of the fastest growth in MAUs. The company said that earlier in the quarter, as the pandemic was shutting down economies around the globe, they saw increases in churn and payment failures from premium users but “things rebounded significantly” in June.

The company also said that as of June 30, “global consumption hours have recovered to pre-COVID levels. All regions have fully recovered with the exception of Latin America which is approximately 6% below peak levels prior to the global health crisis. Regions where the spread of COVID-19 appears to be slowing, including APAC and EU, have led the recovery in consumption. Consumption trends by platform are beginning to normalize as well; in-car listening at the end of the quarter was less than 10% below pre-COVID levels having recovered from a 50% decline at the trough in April.”

As for podcasts, Spotify said it has grown its catalog by 50% this year to 1.5 million shows and that there has been strong growth among MAUs accessing the medium. During Q2, the company announced a multi-year exclusive licensing deal with The Joe Rogan Experience, which will debut on Spotify in September and become exclusive later this year. It also announced multi-year partnerships with Warner Bros. and DC comics to produce original content.

The company snagged another big catch in Q3, with a just-released new podcast starring former First Lady Michelle Obama.

So excited for you to hear the first episode of The #MichelleObamaPodcast with @BarackObama! I wanted to start this season off by discussing our relationship with our community and our country. I hope you’ll tune in on @Spotify: https://t.co/iEjVDPIxEs. pic.twitter.com/9svSKNHRZ0

— Michelle Obama (@MichelleObama) July 29, 2020

Podcast advertising outperformed in the quarter with momentum continuing into July, the company noted.

Since closing out the quarter, Spotify has been in a deal-making mood, having launched in Russia and 12 nearby markets on July 15th — Ek said during the investors call that Spotiyf’s first week performance in Russia was “huge, even bigger than our first week in India” — and announcing an enhanced relationship and licensing pact with the world’s biggest label, Universal Music Group, soon after.

Looking ahead, the company expects to add between 2-6 million premium subscribers in Q3 and possibly narrow its losses to between €70-150 million. By the end of the year, Spotify hopes to have between 146-153 million paid users and as many as 348 million total MAUs. It also forecasts that it will break the €2 billion milestone in revenue in both Q3 and Q4.

Spotify said that the business has more than €1.8 billion ($2.1 billion) in liquidity and is “confident in the financial position of the business as we look at the current and future uncertainty surrounding the global health crisis.”

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