This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.
Business News Digital Top Stories
Spotify trumpets podcasts growth, announces departure of CFO
By Andy Malt | Published on Monday 28 October 2019
Spotify has announced its third-quarter results, beaming that subscriber growth, gross margins and operating profit have all exceeded expectations. It also announced the retirement of CFO Barry McCarthy, which is the sort of thing investors care about, even if you don’t.
The streaming service’s monthly active users reached 248 million over the last three months – higher than predicted. Of that number, 113 are premium users. Year-on-year, paid subscriptions have grown slightly faster than ad-funded, although quarter-on-quarter it’s the other way around.
Emerging markets continue to be key in that growth, especially Latin America and Southeast Asia. The former now makes up 22% of total users, making it the company’s third biggest region, after Europe and the US. Meanwhile, it says, one key emerging market, India, where it launched back in February, “outperformed our forecast by 30%” in Q3.
Revenues were up for both the premium and ad-funded services, with an overall increase of 28% year-on-year to 1,731 million euros. Although the average revenue per user figure than many music industry people often obsess about was down 1% to 4.67 euros. This is partly due to the increased importance of emerging markets, where premium subscription prices are lower, though bundle and discount packages in more mature markets also hit the ARPU.
The company also recorded an operating profit, which is nice. Although in a letter to shareholders it noted that this was in part because “the decline in our share price in Q3 decreased operating expenses more than planned because of reduced social charges on stock-based compensation”. However, it also said, “we would have been profitable even without this impact”.
Elsewhere in the shareholder update, there was room for a bit of snarking at stock market predictions. Spotify noted that, although it had outperformed almost all expectations, its share price still fell over the last quarter. “The business is outperforming and the stock price is down 33% vs the consensus”, it said. “Sometimes the stock price reflects the performance of the business and sometimes it doesn’t. But eventually, it always does”.
Rather than music, when it comes to content, Spotify continues to trumpet podcasts most loudly. It reckons that 14% of monthly active users are now engaging with podcasts on its platform – with listening hours up 39% on the previous quarter – and that those who do are converting from ad-funded to premium at an unusually fast rate.
“Some of the increases are extraordinary, almost too good to be true”, it says. “We’re working to clean up the data to prove causality, not just correlation. Still, our intuition is the data is more right than wrong, and that we’re onto something special. So expect us to lean into our early success with podcasting and to share more insights with you when we’ve established causality”.
Anecdotally, we’ve heard reports of some subscribers being disappointed to find that, when they switch to premium, adverts and other promotional content still appears in many podcasts, because of the way shows are delivered to Spotify – and other podcast platforms for that matter.
Podcast producers sell advertising and advertorial packages themselves, and include that promo content in their uploads, the platforms not generally providing any income to the podcast makers. There have been signs that Spotify is aiming to overcome this issue, but the company may need to do something pretty soon if podcasts are becoming a big driver of premium conversions.
With the Q3 results, Spotify also announced that Barry McCarthy will be stepping down as CFO in January. He will be replaced by Paul Vogel, who is currently Spotify’s VP of FP&A, Treasury And Investor Relations. Pending shareholder approval, McCarthy will return to Spotify’s board of directors, where he held a position before becoming CFO.
