The cost-of-living crisis isn’t biting yet for Spotify’s premium business. Yesterday the streaming service reported its Q3 financial results, adding a net new seven million subscribers that quarter to take its total to 195 million. It’s expecting to cross the 200m milestone by the end of this year.
Spotify ended September with 456 million monthly active users, up 20% year-on-year, with 23 million net additions in Q3 – a record for the company. As for the financials, Spotify saw its quarterly revenues grow by 21% year-on-year to €3.04bn ($3.03bn), although its operating losses grew from €194m in Q3 2021 to €228m a year later.
Key figures up and above expectations, then, although Spotify did note that its gross margin (its gross profit as a percentage of its revenues) has fallen due to factors including “increased publishing rates and an unfavorable change in historical estimates for rights holder liabilities”.
Other points of note? The ‘rest of the world’ (everywhere outside North America, Europe and Latin America) now accounts for 26% of Spotify’s monthly users, up from 21% a year ago. Spotify cited “better than expected intake in India” from a recent marketing campaign as one of the factors there. Latin America and the rest of the world both increased their share of Spotify subscriptions slightly too.
In Spotify’s earnings call, CEO Daniel Ek signalled a higher “hurdle rate” for future Spotify investments and acquisitions – a specific financial term that Ek summarised as “we will be more selective with our overall spending moving forward”.
The earnings call also yielded some more news, sparked by a question about Apple Music’s decision to increase the price of its basic subscription. Ek pointed out that Spotify has already “done more than 46 price increases in markets around the world” in the last two years, but agreed that an increase in the US is on the to-do list.
“It is one of the things that we would like to do, and this is a conversation we will have in light of these recent developments with our label partners,” said Ek, later returning to the topic. “If you think in light of our competitors raising prices, that obviously gives us more confidence going into it, too.”
Ek was later asked if there is scope, when negotiating with labels about price increases, to (in the analyst’s words) “align interest by agreeing that incremental pricing will be a lower share of royalties so you and the label share in the upside”.
He declined to spill any beans on specific talks, but Ek did suggest that “any price increases that we choose to do should be net-net a win-win for both parties. So that’s definitely part of any conversations when we’re talking about pricing with our label partners”. A point worth returning to in the months ahead.
Finally, Ek also fielded a question about the potential threat posed by TikTok, particularly in the light of recent rumours about a global expansion for its sister service Resso.
“We have been in markets with Resso for quite some time, and we’ve seen considerable growth in those markets,” said Ek. “When they’ve taken share, they haven’t taken share from us. It’s been from others. We keep watching it, however.”
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