As Stock Falls, Spotify Reaches For Year-End Growth

Despite disruptions to music listener habits caused by pandemic lockdowns earlier this year, the Recording Industry Association of America (RIAA) reported that streaming music revenues grew 12% to $4.8 billion during the first half of 2020, and paid subscription revenues increasing 14% to $3.8 billion, or 67% of total revenues for the same period. Spotify, after rebounding from a rough start early this year, contributed to the growth with a 29% rise in active monthly users to 299 million, and growth in paid users reaching 138 million in the second quarter.

Now Spotify founder and CEO Daniel Ek said in a statement that third quarter results signify a full recovery, including for ad revenue. But investors are less than impressed with underperforming premium revenue, leaving the streaming giant under pressure to surpass profit expectations by the end of its fiscal year. 

Spotify announced that it added 21 million monthly active users to total 320 million total monthly active users, which exceeded its forecast for the third quarter. The streaming service also totaled 144 million premium, or paid, subscribers at the very top of the guidance range during the same period.  

Although subscriptions increased in the third quarter, Bloomberg reported that Spotify stock fell as much as 8.6% after premium revenue from paid subscriptions at 1.79 billion euros ($2.1 billion) failed to meet analyst expectations of 1.83 billion euros. In addition, Bloomberg reported that some consumers are resisting price increases to family plans in Australia, Belgium, Switzerland, Bolivia, Peru, Ecuador and Colombia.

Still, Spotify remains optimistic. According to a company spokesperson, strong subscriber growth across all regions during the third quarter is mostly attributed to the platform’s recent successful launch in Russia. The streaming company continues to refine its go-to-market strategy with an eye reportedly on South Korea and Africa, and eventually every market. 

“Spotify’s flywheel is accelerating faster with every new user and creator that comes on our platform,” Ek said in a company statement. “We’re building the world’s largest audio network and it’s clear that our strategy is working.”

Spotify’s third quarter report also showed free cash flow exceeding expectations at $120.2 million in the third quarter while revenue fell in line with company guidance on a reported basis. The company reversed its decline in advertising revenue and outperformed guidance for the same quarter. 

Looking ahead, Spotify has set new guidance for growth in the fourth quarter, and it may make additional subscription pricing increases to get there. Based on increasing engagement and growth in value per hour, a company spokesperson said that increased pricing has proved successful in test markets. The popularity of the platform’s Premium Duo subscription (shared between two individuals) could also help boost revenue in the fourth quarter, as could podcasts. 

Spotify continues to make a significant investment in building out its diverse library of two million podcasts featuring the likes of Michelle Obama, DC Comics and Jordan Peele. Named this year as the single biggest podcasting platform by Nasdaq
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, Spotify still considers itself to be in the beginning stages of podcasting, according to a company spokesperson, even though the platform has gained traction in 92 markets with originals and exclusives in 16 markets.