Spotify Q1 Results: User Growth Slows, Streamer Swings to Profit as It Hits 239 Million Premium Subscribers
Spotify reeled in fewer new users overall than it expected in the first quarter of 2024, but the audio-streaming giant touted “record strength” in profitability.
Total monthly active users (free and paid) grew 19% year over year to 615 million, a gain of 13 million from the previous quarter — which missed its guidance by 3 million. Spotify said “moderated marketing activity” led to “more normalized growth” following 2023’s record performance (when it added 26 million new MAUs in Q1).
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The company said the lower-than-expected MAU growth also came amid “organizational change,” a reference to Spotify’s December 2023 layoffs cutting 17% of its workforce. CEO Daniel Ek, on the earnings call, said the job cuts “did disrupt” operations more than expected.
On the paid-subscriber front, Spotify Premium customers grew 14% year over year to 239 million worldwide, a gain of 3 million in the period (in line with guidance).
Revenue in the quarter increased 19.5%, to €3.64 billion, and gross margin topped guidance by 121 basis points, reaching 27.6%, with gross profit hitting €1.0 billion (the first time that’s hit the billion-euro mark). Operating income improved to a new quarterly high of €168 million. Net income for the quarter came in at €197 million, compared with a net loss of €225 million in the year-earlier period.
“We’ve talked about 2024 as the year of monetization, and we’re delivering on that ambition,” Ek said in prepared remarks. “Now as we’ve shifted to focus on strong revenue growth and margin expansion, we see a clear opportunity to ensure we are also continuing to grow the top of our funnel. I feel good about the changes we are implementing and remain very confident in our ability to reach the ambitious plans we’ve outlined.”
For the second quarter of 2024, Spotify projected revenue of about €3.8 billion (which would be an annual increase of about 19%). It anticipates adding 16 million total monthly active users (to reach 631 million) and 6 million Premium subscribers (to hit 245 million).
Spotify said average revenue per subscriber in Q1 increased 5% year over year to €4.55, driven by price increases and partially offset by “product and market mix.”
Ek noted that Spotify regularly evaluates its “value-to-price” ratio vis-a-vis subscription pricing and occasionally chooses to raise rates, but he didn’t detail any specific planned increases. Spotify reportedly plans to hike the price of its subscription plans in the U.S. later this year, after it raised prices in its biggest market less than a year ago, as well as in other territories. Under the new pricing, individual plans will go up by about $1 a month, while family plans and so-called duo plans for couples will rise by $2.
Ek confirmed Spotify will introduce a new music-only plan (excluding audiobooks). However, “We don’t preannounce anything we’re doing on… any particular price increase,” he said in response to an analyst question about Spotify’s reported plans to increase U.S. prices. “We’re constantly looking at how much value we’re adding, how consumers are responding… and what is the fair price to have a good value-to-price ratio.”
Ad-supported revenue grew 18%, reflecting double-digit annual growth across all regions, according to the company. Spotify’s podcast ad revenue in Q1 grew faster than music, driven by “significant growth in impressions sold” across original and licensed podcasts and the Spotify Audience Network, which was partially offset by softer pricing, the company said. The Spotify Audience Network saw “high single-digit” quarter-over-quarter growth among participating publishers and shows. Ek said Spotify’s podcast business remains on track to achieve profitability in 2024.
Last month, Spotify released its 4th annual “Loud & Clear” report, which claimed the company paid out more than $9 billion to the music industry in 2023 — a record for the highest annual payment to the music biz from any single retailer.
Ek told analysts Spotify expects to pay out even more in 2024 to songwriters and music publishers. At the same time, last week the company said it will pay lower music-licensing rates in the U.S. now that it offers music and audiobooks in a combined bundle. A 2022 agreement between the National Music Publishers Assn. and streaming services includes a carveout for such bundles that lowers U.S. mechanical licensing rates. Spotify’s lower royalty rates are retroactive to March 1, 2024, when it launched an audiobook-only tier (for $9.99/month in the U.S.) in addition to the music-and-audiobook bundle introduced in the U.S. in November 2023.
Earlier this month, Spotify announced that it hired Christian Luiga, a senior executive at European defense and security company Saab AB, as its next CFO, starting in October 2024. Ben Kung, Spotify’s VP of financial planning and analysis, is serving as interim CFO until Luiga’s start date. On the call, Ek noted that Luiga was an exec at Telia when the Swedish telecom provider made its investment in Spotify.
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