Spotify posts revenue growth in Q3
Spotify posted its third-quarter(Q3) financial results for 2019 today, and while the music streaming service has increased its number monthly active users (MAUs), its Premium business average revenue per user (ARPU) saw a slight decline.
Spotify says it now has 113 million Premium subscribers, thanks to continued product innovation that has driven improvements in long-term retention, especially in developing regions such as Latin America, Southeast Asia and India. The company posted a total revenue growth 28% of €1.731bn in Q3 year-on-year. Premium revenue was also up by 29% to €1.561bn year-on-year.
ARPU was €4.67 in Q3, down 1% year-on-year and down 3% excluding the impact from FX rates. The most significant driver of the ARPU decline continued to be product mix changes, although geographic mix also played a role.
Ad-supported revenue was €170m, up 20% year-on-year, with podcasting revenue contributing 10%. The company now boasts of more than 500 000 podcasts. Q3 saw the launch of 22 original and several other exclusive titles from Spotify Studios. The company says there has been growth in podcast hours streamed, reaching 14% of total MAUs.
“The balance of the revenue shortfall related to a slowdown in programmatic growth from 65% the previous year in Q2 to 48% in Q3, mostly related to a slowdown in video PMP revenue. Programmatic revenue was sluggish early in the quarter but regained momentum during Q3,” it said.
Spotify’s gross margin, the compnay said, registered a 25.5% rise in Q3, 30 basis points above its guidance of 23.2 to 25.2%. An increase was also seen in the ad-supported gross margin, which was up by 16% in Q3 from 15.8% in Q2.
The same cannot be said for Premium gross margin after it fell to 26.5% in Q3, from 27.2% in Q2.
“The largest contributor to outperformance stemmed from our core music gross margin. Royalty costs were more favourable than expected due to product and revenue mix. We also had lower content expense resulting from both lower overall spend and the slower rollout of developed shows. Similar to the trends we saw develop in Q2, Q3 saw continued efficiencies in streaming delivery and payment expense,” Spotify said.
The company hopes to invest more in its two-sided Marketplace strategy aimed at harnessing Spotify’s ability to connect artists with fans and enable 1 million artists to live off their work. More detail on the financial benefits of Marketplace and its impact will be part of its fourth-quarter results, which will be released in 2020.
Recent positive developments from its Marketplace strategy include the launch of Spotify for Artists, the acquisition of SoundBetter and the introduction of Sponsored Recommendations.
“Through a combination of tools, services and programmes, we will be able to serve creators better and build a better business for Spotify by leveraging our demand creation capabilities. So Marketplace is about meeting the needs of creator teams to create art, engage with, grow and better monetise their fanbase.
Looking further ahead, Spotify predicts that it will boast between 255 and 270 million users before the release of the Q4 report. It also expects to have accumulated revenue of between €1.74bn and €1.94bn. Its Premium numbers are also expected to rise to between 120 and 125 million subscribers.
Meanwhile, Spotify’s chief financial officer, Barry McCarthy, will retire on 15 January 2020 and rejoin the Spotify board of directors. Taking over from McCarthy will be Paul Vogel – Spotify's head of investor relations.
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