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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