Spotify Surges to a Surprise Profit

Posted on October 28, 2019 by Paul Thurrott in Spotify with 11 Comments

With its monthly average user (MAU) and subscriber numbers rising faster than expected, Spotify has announced a gross profit of $490 million on revenues of $1.92 billion for the quarter ending September 30.

“The business met or exceeded our expectations in 3Q19, with accelerating MAU growth, and better than expected subscriber growth, gross margins, and operating profit,” Spotify said in its announcement. “For the 8th consecutive quarter, free cash flow was positive. We continue to see exponential growth in podcast hours streamed (up approximately 39 percent [quarter-over-quarter) and early indications that podcast engagement is driving a virtuous cycle of increased overall engagement and significantly increased conversion of free to paid users … Overall, the business is performing strongly.”

We don’t get to say this about Spotify all that much, but the numbers look pretty good. The firm’s profits and revenues both rose significantly, year over year (YOY)—29 and 28 percent, respectively—and its user numbers all exceeded expectations. MAUs rose 30 percent to 248 million, for example, and Spotify’s paid customer base jumped 31 percent to 113 million subscribers. The firm also has 141 million ad-supported customers, up 29 percent YOY.

With Apple Music nipping at its heels in the U.S.—the heavily subsidized business has a reported 60 million paid subscribers—Spotify has turned to podcasts and to underserved international locales this year to drive user growth. “Relative to Apple, the publicly available data shows that we are adding roughly twice as many subscribers per month as they are,” Spotify noted. “Additionally, we believe that our monthly engagement is roughly 2-times as high and our churn is at half the rate.”

Spotify also announced that CFO Barry McCarthy will retire in January and will be replaced by Paul Vogel. McCarthy will remain on Spotify’s board of directors.

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Comments (11)

11 responses to “Spotify Surges to a Surprise Profit”

  1. Daekar

    I'm glad they're finally in the black, but it blows my mind that it's a surprise that a company at this scale makes a profit. The digital economy really is crazy.

  2. MikeGalos

    With roughly twice the paid subscribers and twice the growth rate, it looks like Apple Music is hardly nipping at their heels on a global rate.

    Now, if only the entire streaming music industry would stop screwing over performers.

  3. gregsedwards

    I know we keep going over this, and the consensus is that the music streaming business is a very difficult place to make any money, but Microsoft should seriously consider getting back into the game by just acquiring Spotify. Competitors like Apple, Google, and Amazon are seen as holistic platforms because they provide offerings on all content fronts. If Microsoft still wants to be seen as a competitor, they need to have a music offering. And clearly, Spotify is doing something right.

    • will

      In reply to gregsedwards:

      I do not think they want to be a competitor in this space. Groove music was never what a Spotify or Apple Music is. They are better off working with them and letting customers use the service they want on the devices they have.

      They are focused on the services that work for them namely Office, Azure, Windows, Surface, and Xbox and honestly I am ok with that. Buying them really does not make much since with their current focus.

      • gregsedwards

        In reply to will:

        It matters in the sense that Microsoft do still want to be seen as a leading consumer technology company. As Xbox Music, Groove's was arguably one of the first platforms to offer music as a service. Its narrow availability meant that it was never able to catch fire like the competition.

        Was Groove profitable? No, but the same value proposition could also apply to Movies & TV, where it makes literally no sense for a company like Microsoft to maintain the overhead of a content distribution system, when a number of others (Vudu, Redbox, Fandango, etc.) currently exist on the Xbox and Windows platforms.

        And yet, they could easily absorb the cost of running such a service into the increased value it brings to their other services, such as Xbox, Mixer, Windows, Groove (as a desktop client), etc. They could even leverage Azure as the content warehouse.

    • Skolvikings

      In reply to gregsedwards:

      No offense, but Microsoft would ruin Spotify. I love Spotify too much to want that to happen. I couldn't care any less about Microsoft being in the streaming music space. I just want a quality service and Spotify already provides that.

  4. Stooks

    A lot will depend on the Apple TV services. If its successful and they bundle TV/Music that could really help Apple. If not (I predict it will be lackluster) Spotify will continue to grow as Apple music peaks and stays glued to iOS device users for the most part.

  5. codymesh

    Spotify is a true innovator in the music streaming space and they understand what it takes to for such a business to truly stand on its own legs, unlike the competitors who have proxies that subsidize them and don't even bother making proper apps for where users are

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