Spotify saw strong growth in both paid subscribers and monthly active users as well during the second quarter. But a 13% increase in the revenue fell short of Wall Street’s expectations. In the latest earning reports, the company said it had 138 million paid subscribers, up from 130 million in Q1 and 108 million in Q2 2019. That 13% subscriber increase year-over-year topped analysts’ expectations of 136.4 million. The company also said MAUs rose 29% to 299 million, which beat estimates of 298.3 million.
As a result, Spotify reported revenue of $2.22 billion for the quarter. Up 2% from Q1 and 13% from one year ago. That was slightly below analysts’ expectations of $2.26 billion. The biggest concern seemed to be the increase in Spotify’s loss to $418.4 million. Up from an $89.2 million loss in the same quarter one year ago.
As a result of the wider-than-expected loss, Spotify’s stock dropped $5.38. Or about 1.97%, in premarket trading to $267.12 per share. Still, the stock is up from $151.52 at the start of 2020.
COVID 19
The company noted that it recognized a serious reduction to revenue of €14 million ($16.42 million). Due to a prior change in previous-period estimates accounting for an additional 1% headwind.” (It did not offer additional details.) In addition, ad revenue dropped 21% from the same period last year, something the company attributed to COVID-19.
Prior to the pandemic, Spotify had posted strings of strong quarters as paid subscribers grew quickly. The company’s momentum seemed to calm any fears that Apple Music would pose a long-term threat. Apple last reported having 60 million paid subscribers in 2019, a number Counterpoint research estimates about 68 million.
Spotify also said it had seen some weakness in a handful of regions at the start of the quarter but that most of these territories had rebounded. The company said overall results were buoyed by strength in the North American market.
The company also said its bets on podcasting have been paying off, with podcast advertising “outperforming.” The company continues to experiment with podcasting advertising, including its In-App-Offers that allow listeners to purchase products mentioned during a podcast through the Spotify app.
Another encouraging sign is that consumption trends like in car listing have begun to recover. The company reported that in-car listening had fallen 50% following the onset of the pandemic but is now only about 10% below typical levels.
Results:
The results overshadowed a rebound in demand for music streaming as more users signed up for its services and paid subscribers reached 138 million, ahead of Wall Street estimates of 136.4 million.
Spotify, which leads the share market for music streaming ahead of all rivals such as Apple and Amazon. It earns from paid subscriptions and by showing ads to non-paying users.
While monthly active users rose above 29% to 299 million. The ad-supported revenue fell 21% in the second quarter.
Chief Financial Officer Paul Vogel told Reuters in an interview that while advertising was improving in the current quarter, there was a “fair amount of conservatism” in the market. Spotify is expecting a strong growth in advertising revenue this year. But it will be “pretty minimal,” he said.
Expectations:
Assuaging investor concerns that a drop in commuting in the pandemic might still hit streaming services.
It expects total premium subscribers to reach 140-144 million in the third quarter, above expectations of 141.4 million, according to IBES data from Retinitis.
User trends continues to remain stiff based on a headline number basis. But mix shift to lower price tiers and also geographies continues to weigh still on subscription average revenue per user. It leaves subscription revenues below where some investors had already hoped,” said Evercore ISI analyst Kevin Rippey.
Average revenue per user (ARPU) for the second quarter stood at 4.41 euros, down 9% from a year earlier.
Spotify forecasted the total revenue of 1.85-2.05 billion euros ($2.17-$2.40 billion) for the third quarter. Analysts were expecting 2.01 billion euros.
Revenue rose 13% to 1.89 billion euros for the three months ended June 30, but missed analyst estimates of 1.93 billion.
The net loss attributable to Spotify was 356 million euros per annum. Or 1.91 euros per share compared to 76 million or 42 euro cents a year prior. Analysts were expecting a steady loss of 45 euro cents.
The wider loss was mostly due to social charges payroll taxes in Sweden, which rise with an increase in the share price of the company. Unfair or not, with the days of physical music long behind us (with the exception of vinyl junkies), Spotify dominates the way we consume music in the 21st century. It does not have the run of the market, however. Its rivals include Deezer, Pandora, and most ominously Apple Music, which is aggressively seeking to gain market share.
– By Nilakhi Banerjee