Music-streaming giant Spotify grew subscribers and total users, along with advertising revenue, helped by podcasts, in its third quarter.
It ended September with 172 million premium, or paid, subscribers, up from 165 million as of the end of the second quarter. The result was in line with the range of 170-174 million that the company had previously forecast it would reach.
Spotify also hit 381 million total monthly active users (MAUs), up from 365 million in the second quarter and near the top end of its guidance range of 377-382 million, the Wednesday earnings update showed.
Premium subscriber trends in the third quarter were helped by a promotional test, said Spotify, led by CEO Daniel Ek. “We tested a Premium promotion in the third quarter, which aided the typical seasonality of our business and also helped offset the tough comp from the successful launch of Russia and surrounding territories in the third quarter last year,” it said. “Our average monthly Premium churn rate for the quarter was down sequentially and up year-over-year against last year’s historic low. We are pleased with the trends in churn and continue to expect full year 2021 churn to be down versus 2020.”
Stockholm-based Spotify reiterated its previous year-end 2021 projection that calls for 177-181 million premium and 400-407 million MAUs.
On an earnings conference call, Ek said that MAUs “choppiness in the first half of the year was primarily due to COVID and is now largely behind us.”
Spotify’s quarterly advertising revenue, which had returned to growth in the third quarter of 2020 following a coronavirus pandemic hit, continued to rise, jumping 75 percent compared with the year-ago period, helped by growth in podcasts. It reached a company record for quarterly ad revenue of 323 million euros ($375 million). “Since launch, the number of podcasts in our network has grown by more than 50 percent, and nearly one in five Spotify advertisers are already participating,” the company said.
On an earnings conference call, Ek said ad revenue growth has been exceeding the company’s expectations and would exceed 1.0 billion euros ($1.2 billion) annually for the first time this year. He said the recent momentum proves the potential for ads to be “the second big revenue driver for the future of our business.” And he said the ad business was “accelerating with much more room to run.”
The CEO said advertising should get to contributing at least 20 percent of total revenue for Spotify next and could expand to as much as 30-40 percent over the next five to 10 years.
Podcasting has been a key focus for Spotify, which ended September with 3.2 million podcasts on its platform, up from 2.9 million as of the end of June. “Our podcast business was driven by strong double-digit year-over-year growth at existing Spotify studios (The Ringer, Parcast, Spotify Studios, and Gimlet) along with the (podcast ad company) Megaphone acquisition and the exclusive licensing of the Joe Rogan Experience, Armchair Expert with Dax Shepard and Call Her Daddy,” the firm said.
Ek told the earnings call that Spotify was ahead of its plans for podcast monetization. He also highlighted that data has shown that Spotify has become the top platform for podcast consumption in 60-plus countries, adding that one research firm and company sources now show that “we recently became the no. 1 podcast platform U.S. listeners use the most.” Given the U.S. podcasting market is the world’s largest, he said “I think this is quote significant.”
Asked what was key to keep bringing creators on board for the podcasting business, Ek replied: “We need to lower the barriers for creators to express themselves.” He added the need to offer new formats and opportunities, highlighting that there was “massive, massive interest” from creators in the firm’s video podcasting efforts. “You should be starting to see lots more videos on the Spotify platform as creators start experimenting with those things,” Ek said.
Spotify swung to a third-quarter profit of €2.0 million ($2.3 million) from a year-ago loss of €101 million. Quarterly revenue grew 27 percent to €2.50 billion ($2.90 billion). Average revenue per user for Spotify’s subscription business rose 4 percent to €4.34 ($5.03), reversing declines with the help of price increases for its family plan in several markets, including the U.S.
In pre-market trading, Spotify shares were up 6.7 percent to $269.00 as of 8:45 a.m. ET.