Spotify has published its financial results for the second quarter of 2019, revealing that the streaming service added 15 million new listeners last quarter, including eight million paid subscribers.
Spotify ended June 2019 with 232 million listeners, up 29% year-on-year from the 180 million it had a year ago, and up 7% quarter-on-quarter from the 217 million it had at the end of March this year.
108 million of those active users are now paying, representing year-on-year growth of 31% from its 83 million subs at the end of Q2 2018.
How did this all pay off for Spotify’s financial health? The company reported total revenue of €1.67bn in the second quarter of 2019, up by 31% from the €1.27bn it posted in Q2 2018. Within that, premium (subscription) revenues grew by 31% to €1.5bn, while ad-supported revenues grew by 34% to €165m.
Profitability? The company reported a net loss of €76m last quarter, compared to a loss of €394m in Q2 2018.
In its financials announcement, Spotify said that Q2 “outperformed our expectations”, with its revenues growing more than two-and-a-half times faster than its growth in operating expenses.
Also news: “We have reached agreement with two of our four major label partners on the renewal of our global sound recording licenses, and are in active discussions with the other two,” reported Spotify.
“This is the sixth round of label negotiations we’ve worked through in our thirteen year history and, while it is typically a long drawn-out process, it has become part of the normal cadence of the business.”
[Four major label partners? Music Ally understands that licensing agency Merlin, which represents independent labels, is who Spotify is counting as the fourth major, in this context. So read that sentence as ‘our four major label-partners’ rather than ‘our four major-label partners’, in other words.]
Update: we’ve also reported on the key points of interest from Spotify’s earnings call
The financials reveal more information on why Spotify outperformed its expectations in Q2. “Most of our geographic regions growing faster than our expectations,” claimed the company, although it highlighted Germany and Japan in particular: two late-blooming markets for music-streaming that both performed “materially better than forecast” for Spotify. India, too, was picked out as a bright spot.
“However, the most significant source of upside has been improvement in long-term retention due to our continued product innovation, particularly evident in our emerging geographies,” claimed the company’s filing.
Spotify’s 108 million subscribers figure was closer to the bottom of its 107-110 million prediction for the quarter, with the company citing “below plan” signups for its student subscription tier.
“As we have discussed previously, our goal is to perform at roughly the 70th percentile of our guidance range and we missed on subs. That’s on us. The good news is that the shortfall was execution related, rather than softness in the business, and we expect to make up the lost ground before year-end.”
Spotify highlighted the fact that its average revenue per user (ARPU) for premium subscriptions was €4.86, down just 1% year-on-year – the topic of ARPU is a sensitive one in some label circles, amid worries that Spotify’s family plan might be a little too popular for comfort.
Podcasts are also pulled out in the financials filing. Spotify says that “tens of millions” of its users are now streaming podcasts on a monthly basis, with that audience growing by 50% quarter-on-quarter. In fact, podcast listeners on Spotify have “nearly doubled since the start of the year”.
Spotify also said it’s seeing increased demand for podcast advertising, and has big plans for turning its spoken-word catalogue into hard turnover.
“While still relatively small, we continue to expect fast revenue growth from podcasts through the remainder of 2019 and into 2020. Over time, our ambition is to reinvent the podcasting ad experience by building a new tech stack to enable targeting, measurement, and reporting capabilities like we have for our core Ad-Supported offering.”
The company added that it is making “good progress” on its development of its so-called ‘two-sided marketplace’. Spotify said that it is “actively building and testing prototype products with some label partners” that it expects to launch early in 2020, although it won’t be giving more details of what those products are until they launch.
Spotify also published its latest forecasts for 2019 as a whole. It now expects to end this year with 250-265 million monthly active users, including 120-125 million premium subscribers.
Here’s one more bit of analysis from Music Ally, that we’re wondering what to make of:
It’s a graph plotting year-on-year growth every quarter for Spotify’s overall revenues, and for the biggest label Universal Music Group’s recorded-music streaming revenues. For example, in the last quarter, Spotify’s revenues grew by 31%, while UMG’s streaming income for recordings grew by 32%.
It shows the quarterly year-on-year growth for both companies decelerating throughout 2017, then accelerating again throughout 2018 (or at least for three quarters of it in Spotify’s case), but then dropping back again in the first half of 2019. A trend to ponder, perhaps.