Spotify, the world's largest music streaming platform, shows no signs of slowing down. In the third quarter, revenue reached 3.99 billion euros ($4.32 billion) and subscribers grew by 6 million, the company announced on Tuesday (Nov 12).
The Swedish music streaming company has helped revolutionize the way people listen to music, but until recently, it didn't have the financial results to match its market power. Reacting to investor demands for both growth and profitability, last year Spotify tightened its belt and laid off about a quarter of its workforce, and its quarterly financial results this year showed notable improvements in margin and profitability without sacrificing the very significant increase in subscribers.
Although revenue was slightly below Spotify's previous forecast of 4 billion euros ($4.4 billion), operating profit was a record 454 million euros ($500 million), beating guidance by 12 percent. After regularly recording operating losses in previous years, Spotify's operating profit rose 70% from the second quarter and was more than 14 times higher than the previous quarter.
Likewise, gross margin – revenue less cost of sales – came in at 1.24 billion euros ($1.37 billion) and improved to 31.1% of revenue, from 29.2%, 27.6% and 26.7 % the three previous quarters. The margin improvement was attributed to premium subscription earnings as well as audiobook and ad-supported earnings.
Recent price increases in the US and many other markets have not slowed subscriber growth. Spotify ended the third quarter with 252 million subscribers, up 6 million from the previous quarter and 11.5% higher than the year-ago period. Subscription revenue reached 3.51 billion euros ($3.86 billion), up 20.8% year-on-year. Average Premium revenue per user increased 9% (in constant currency) to €4.71 ($5.18).
Advertising, a key component of both Spotify's freemium music model and its podcasting business, continued to lag behind subscriptions. Advertising revenue of 472 million euros ($520 million) was up 5.6 percent from the second quarter and 3.5 percent from the previous quarter. Music advertising was helped by sales growth and hampered by pricing weakness. Podcast advertising also suffered from price weakness and benefited from an increase in impressions sold.
The results sent Spotify's share price soaring in after-hours trading. After the earnings release after the market closed, Spotify shares jumped more than 9% to $459. Before trading closed, the stock hit an all-time high of $419.72 and hit its best close of $419.48, up 2.3%. The stock closed above $400 for the first time on Friday (November 8) and is up 123% in 2024.
from our partners at https://www.billboard.com/pro/spotify-q3-earnings-subscription-revenue-operating-profit-grow/
