Spotify edges on profitability with positive operating income of €54m in Q3 2019

By Emmanuel Legrand

Spotify is showing increasing signs that it is close to breaking even. The music streaming service has posted for the third quarter of 2019 a positive operating income of  €54 million, against losses of €3m the previous quarter.

  The company pointed out that in the third quarter, "business met or exceeded our expectations" with "accelerating" monthly active user (MAU) growth, and "better than expected" subscriber growth, gross margins, and operating profit.

  Total revenue reached €1,731m in Q3, up 28% compared to same period in 2018, with premium revenue up 29% at €1,561m, while Ad-Supported revenue was up 20% €170m. Spotify said premium revenue outperformed expectations while the Ad-Supported business "under-performed."

  Total monthly active users grew 30% year on year to 248 million. However the grow seems to be slowing down since MAUs only grew by 7% to between Q2 and Q3 2019. Ad-supported MAUs grew 29% year-on-year to 141 million. Premium subscribers grew 31% year on year to 113 million and 5% quarter to quarter.

 Accelerating growth in Latin America

  "Net Subscriber growth exceeded our expectations and was led by strong performance in both Family Plan and Student Plan," said the company in its financial filing. The company said developing regions are significant driver of growth, with Latin America accelerating sequentially for the second consecutive quarter and Southeast Asia remaining Spotify's fastest growing region (excluding India).

  The filing offered a significant insight into how Spotify sees its performances compared to other competing streaming services. "We continue to feel very good about our competitive position in the market," said the company, adding that based on publicly available data, Spotify is "adding roughly twice as many subscribers per month as [Apple Music] are."

  Regarding Amazon, Spotify said its estimates "imply that we continue to add more users on an absolute basis than Amazon." Spotify's data also suggests that Amazon’s user base" skews significantly more to ‘Ad-Supported’ than ‘Premium’, and that average engagement on our platform is approximately 3x."

Podcasting 'outperformed expectations'

  On the podcasting front, Spotify said revenue from this segment "outperformed expectations" with strong year-over-year growth but remains "a relatively small slice of the total Ad-Supported business at less than 10% of total ad revenues" or less than €17m. The USA accounted for the largest share of podcast streams but share of listening is higher and growing faster in several European countries. Spotify now has more than 500,000 podcast titles available on the platform.

  Podcasts were access by 14% of its MAUs, representing 33.7 million users. "Spotify has established itself as an important player in the global podcast marketplace but is far from a dominant player yet (it will likely hit 5.5% of global podcast revenue market share by year end 2019)," wrote analyst Mark Mulligan from MiDIA Research, who also noted that podcasts are "still a tiny part of Spotify’s business." However, Mulligan said Spotify’s podcast strategy is motivated "not just by growth ambition but also as a defensive strategy for maintaining its audience’s attention."

  For the last quarter of the year, Spotify expects total MAUs in the range of 255-270 million, with total Premium Subscribers around 120-125 million. Revenue should hit €1.74-€1.94bn with Operating Loss between €31-€131m.


> Spotify executive Barry McCarthy will be stepping down as the music streaming company’s CFO on January 15, 2020. He will be replaced by Paul Vogel, who is currently Spotify’s VP of FP&A, Treasury and Investor Relations. The company said he played "a pivotal role in Spotify’s listing and helping to establish Spotify as a public company." Pending shareholder approval, it is expected that McCarthy will be re-appointed to the Spotify Board of Directors, a role he held prior to joining the company as CFO.