Spotify’s monthly active users increased by 29% year-on-year to 232 million for the quarter ended June 30, 2019, outperforming its 222-228 million MAU guidance range. However, CEO Daniel Ek said this was not because of growth in the Indian market, which the company said “performed well and in line with expectations”. He said Spotify Lite – now in 36 countries – was among the reasons behind the increase in MAUs.
Users listened to more than 17 billion hours of content, up 35% year-over-year. Ek also said that the company was looking to expand into the African, Russian and South Korean markets. It said that outperformance was mostly “broad based”, and cannot be attributed to specific reaons. It’s worth noting that Asia remained Spotify’s fastest growing region.
Spotify has reached agreements with two out of their four major music labels on renewal of their global sound recording licenses, and is in active discussions with the other two.
Premium subscriptions missed forecast
Total revenue grew by 31% year-on-year and stood at €1,667 million; premium subscriptions accounted for €1,502 million of the total revenue. Premium subscribers increased by 31% to 108 million subscribers. However, the company fell short of the midpoint of their forecasted range of 107-110 million premium subscribers. Monthly churn also decreased to an all time low of 4.6%. Ad-supported revenue was €165 million and grew 34% year-on-year – it is worth noting that this was the fastest year-over-year growth rate since 2016. Noticeably, for the ad-supported business, revenues outperformed forecasts, which Spotify said was due to its strength in the US.
Operating expenses increased by 4% to a total of €437 million, while operating losses totalled €3 million. The company said that this was a better than expected operating loss and attributed to higher gross profit and lower than expected spend across artist marketing, R&D, and G&A (general and administrative).
Germany and Japan showed shift from physical music distribution
Germany and Japan, markets which have been largely tied to physical music distribution, “performed well for Spotify”, according to shareholder letter.
Physical ownership of music is not the prevailing form of music in the two countries, for which there are multiple reaons, including broadband and smartphone penetration, new technologies like 5G and creators around the embracing digital distribution of music as a primary way.
On Apple taking over Spotify in the US
When an investor questioned about Apple overtaking Spotify in the US, Ek said that he didn’t know “the specifics about what numbers they [Apple] claim to have in the U.S. relative to ours [Spotify]”. He said while competitors like Apple Music had their own set of strengths, Spotify’s strengths lied in investing in Premium, personalisation and ubiquity. Ek also didn’t comment on Spotify’s complaint against Apple to the European Commission, saying that there was “no update” since it’s a process that take a lot of time.
Download: Shareholder Letter | Investor Call Transcript
