Packets of optimism: What you need to know about Spotify's earnings

Spotify stock jumped 12% on Tuesday after Spotify reported quarterly earnings that beat expectations for subscriber growth and profit margin.

In a wide-ranging earnings call for the company that touched on the controversy sparked by Spotify's audiobook bundling, its plans for a premium music tier and missing its target for monthly active user growth, Spotify chief Daniel Ek said the company he helped found 18 years ago is reaching a turning point.

“While many people think Spotify has a great product, we had to prove that we could also be a great business,” Ek said. “I think we're really starting to show it now.”

Here's what else you need to know about the global streaming giant's latest quarterly earnings and what was said on the call.

“It was a very strong quarter against most of our key metrics”

Ek said at the top of the webcast. The streaming giant, which for most of its 18-year history has been unprofitable, reported its third consecutive profitable quarter, boosted by the addition of seven million net new subscribers, an expanded gross margin of 29.2% and 490 million euros ($533 million) in free cash flow, the largest in the company's history. However, the company missed its internal target for total monthly active users (MAUs), reporting a total of 626 million MAUs against a target of 631 million.

Ek said they are addressing this by boosting free products to boost engagement and retention in growing markets.

The package controversy

When Spotify announced plans to raise subscription prices in the US and add 15 hours of audiobooks per month in May, it also claimed it could pay a discounted “package” price to songwriters for top streams that Advertising sign Estimates could reduce royalty payments to songwriters and music publishers by $150 million. The Mechanical Licensing Collective sued Spotify, claiming it “misclassified” its premium tiers as bundles. Ek declined to comment on the lawsuit, but defended Spotify, saying it paid a record amount to record labels and publishers in 2023 and will “exceed those numbers” in 2024.

“A lot of people want to make it this zero-sum game where we have to win and they lose, or they have to win and we kind of lose,” Ek said. “It's not as much of a zero-sum game as people make it out to be. That doesn't mean we don't argue about different things at different points. This is the nature of all supplier and distributor relationships. Overall, we have had a healthy relationship with the music industry for 18 years. … Overall the music industry is growing. We are putting a lot of time and effort into making sure it continues to grow.”

Interim CFO of Spotify Ben Kung declined to share details about Spotify's royalty payment deals, but said the company is confident in its position.

New ultra-premium tier on the horizon

Asked about Spotify's plans to launch a long-delayed high-definition audio offering, Ek described the company's effort to bring something like a “deluxe version” of Spotify to life for “a large subset” of Spotify's 246 million-plus subscribers.

“The plan here is to offer a much better version of Spotify. So think something like $5 above the current premium level, so probably around $17-18 price point, but a kind of deluxe version of Spotify that has all the benefits that the regular Spotify version has and more control and quality in all flat. said Ek.