In an impressive feat, Spotify has reported a staggering 551 million monthly active users during the second quarter, marking a significant increase of 36 million compared to the previous quarter and setting an all-time high for the company.
The music streaming giant has also achieved another milestone by adding 10 million paid subscribers, surpassing their guidance forecast by three million and reaching 220 million paid subscribers.
Despite these positive figures, Spotify faced challenges in managing its operating expenses, leading to a notable increase in operating losses. The company’s operating losses reached €247 million (approximately $273 million), significantly missing the guided figure of €129 million ($142 million). Spotify attributed this increase to “charges related to our actions to streamline operations and reduce costs,” which involved downsizing its real estate footprint and restructuring its podcasting business. It’s important to note that these charges were not accounted for in the Q2 guidance. Excluding these charges, the company’s operating loss was €112 million ($124).
Furthermore, gross margins reached 24.1 percent, slightly below the guided figure of 25.5 percent. Meanwhile, total operating expenses surged to €1 billion ($1.1 billion), representing a 13 percent year-over-year increase. Despite the rise in costs, the company’s revenue aligned with expectations at €3.2 billion ($3.5 billion).
Spotify has implemented various cost-cutting measures over the past year to address the escalating costs. This included laying off 200 employees in June, following previous layoffs of 600 employees in January and other reductions in October.
The company also made significant programming cuts, ending its exclusive podcasting deal with Prince Harry and Meghan Markle in June. Additionally, Spotify consolidated podcasting studios Parcast and Gimlet into a single division after canceling ten shows from both companies in the previous fall. Spotify’s CEO, Daniel Ek, acknowledged the company’s earlier overpayments in the podcasting domain and emphasized their focus on investing in shows that strongly resonate with subscribers using improved data analytics.
Despite these challenges, Spotify continues to expand its content offerings, including a new weekly podcast with Trevor Noah, which will not be exclusive to Spotify. The podcast business is also experiencing positive advertising trends, with Spotify reporting annual revenue growth of over 30 percent.
In response to the rising costs and to enhance profitability, Spotify recently announced an increase in the premium plan’s price to $10.99 monthly. This aligns the streaming service with competitors like Apple Music and Amazon Music. Existing subscribers will receive a one-month grace period, and Spotify anticipates the price increase to have a “meaningful impact” on revenue from Q4 onwards. However, it is expected to have a significant effect at the end of Q3.
Looking ahead, Spotify forecasts continued growth in its user base, with an expected 572 million monthly active users for the next quarter, representing a 21 million increase from Q2 and 224 million subscribers, an additional four million. Although there might be some churn due to the price increase, the company remains optimistic about net additions in Q3, expecting them to be higher than in the same period last year.
CFO Paul Vogel acknowledges that while historical price increases have had minimal impact on growth, the significant changes made in the first half of the year warrant some conservatism in their outlook for Q3. Nevertheless, Spotify remains committed to delivering an exceptional user experience and aims to balance profitability and growth.
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