You’ll hopefully have seen our story on Spotify’s latest quarterly financials yesterday. The streaming service now has 113 million premium subscribers and 248 million monthly active users; saw its revenues grow by 28% year-on-year to €1.73bn; and reported a quarterly operating profit of €54m, and a quarterly net profit of €241m. In our story yesterday, we said we’d see how the company’s share-price responded. Well, that response was good: in fact, it surged by as much as 18% in the hours after the financials were announced.
CEO Daniel Ek was understandably buoyant in Spotify’s earnings call. “The business met or exceeded our expectations by every measure,” he told analysts, while hammering home Spotify’s message that podcasts are boosting its business overall. “We made the strategic bet that music and podcasts are additive and that users would enjoy having podcasts as part of their Spotify experience. We’re seeing evidence of this is paying off with signs of increased engagement and higher conversion rates from free to paid.”
Ek batted back a question about Spotify’s ongoing licensing-renewal negotiations (“It’s really no new updates on the timing… we don’t expect any material differences with the exception of the introduction of the marketplace strategy”) and then offered a prediction relating to that strategy, and how paying subscribers will respond to features (like the new test of album-recommendation pop-ups) that are paid for by labels. “If you’re a paying customer, you have the opportunity of turning it off the sponsor listing. We expect most not to do that, because this is actually a widely asked for feature by our customers,” said Ek.
Outgoing chief financial officer Barry McCarthy hinted at plans to invest more heavily in podcasts. “We’re likely to lean into that more aggressively, because of the success we’re having. And you should feel good about that,” he told analysts, while promising more details next quarter. Ek, meanwhile, said that Spotify is “really not yet focusing on monetisation of podcasts: the primary thing for us has been really drive up the engagements”. For now, Spotify sees podcasts as driving subscriptions, and is focusing on that dynamic. “Over time, though, obviously, we believe monetization of podcasts remains a huge opportunity. And it is something that we’re going to start looking at in 2020,” added Ek.
McCarthy also returned to a theme he’s talked about before: the future competitive environment. “We can see in video that streaming wins and linear dies. Same thing is going to happen in audio,” he said. “That means broadcast radio is going to dip. Who remains, who eventually becomes dominant in that space, is the game still to be played. At the moment, we’re the largest and I think competitively advantaged, and it’s our game to lose.”