Spotify’s 7 Million New Subscribers Bumps Revenue Up 20%

Spotify added 7 million subscribers in the second quarter, roughly 1 million more than it forecasted, which bolstered revenue and profit margins, the streaming giant said on Tuesday.

Spotify reported 3.8 billion euros ($4.15 billion) in total revenue, a 20% increase from the year-ago quarter, with a record high gross margin of 29.2% that beat guidance. Its operating income was up for the second straight quarter to 266 million euros ($289.6 million), which the company said was thanks to a stronger 7% gross margin and lower marketing, personnel and other costs.

While Spotify’s 626 million total monthly active users (MAUs) came in lower than the 631 million MAUs the company expected in the second quarter this year, it grew premium subscribers by 1 million more than forecast, and as Spotify raises prices in the U.S. again, that helps the company keep its growth goals on track. The increase brings the premium subscriber total to 246 million.

“Overall, we are encouraged by the traction we are seeing from our monetization initiatives and remain focused on delivering the goals out lined at our 2022 investor day,” the company said in a statement.

Revenue from premium subscribers grew 21% year over year thanks to those subscriber gains and premium average revenue per user (ARPU) gains of 10% compared to last year. Revenue from ad-supported users rose 13%.

The price of Spotify’s premium individual plan in the U.S. rose $1 to $11.99 a month and the duo plan jumped a buck to $16.99 a month in July.

Spotify has been under pressure from major music companies and organizations to reverse changes it made in May to its bundled subscription services that added audiobooks to its premium tier. Spotify wants to pay songwriters a discounted bundle rate for premium streams, but groups like the MLC are suing Spotify claiming the streamer “improperly” classified its premium tiers as bundles.

Billboard estimates the move, which reclassified premium, duo and family subscription services as “bundled subscription services,” could cut songwriters’ and music publishers’ royalty payments by $150 million in the first year.

The lower personnel costs that helped boost operating income are in part due to staff cuts the company made last December.

Spotify chief executive officer Daniel Ek is expected to discuss the company’s strategy on bundling and provide greater details about his company’s quarterly earnings on a call Tuesday morning.

Topline Results for Q2:

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Written by Mr. Nimbus