Spotify has posted its latest earnings report, stating that both paid and free users were up more than 10% year-on-year, but the company returned to making a loss …
Spotify announced solid growth in both subscribers and revenue:
- Subscribers climbed 12% Y/Y to 276 million.
- Monthly Active Users grew 11% Y/Y to 696 million.
- Total Revenue increased 10% Y/Y to €4.2 billion.
- Gross Margin improved by 227 bps YoY to 31.5%.
- Operating Income reached €406M.
However, the streaming music business operates on notoriously slim margins, with most subscription and ad revenue being paid direct to music labels, and Spotify has struggled to turn a profit. While it did manage this in Q2 last year, it returned to a loss in the same quarter this year.
The company says that “social charges” were a key factor.
Gross Margin of 31.5% was in-line with guidance and reflected 227 bps of Y/Y expansion. Operating Income of €406 million was below guidance due to €116 million in Social Charges, higher payroll and related expense and Revenue mix shift. Social Charges were €98 million above forecast due to share price appreciation during the quarter.
Spotify is based in Sweden, where company payroll taxes rise in line with their share price. The idea is that as shareholder value rises, so too should the company’s contribution to social spending in the country. This allows the country to have relatively generous welfare payments for its citizens when they lose their jobs or are unable to work due to illness or injury.
Part of the growth in premium subscriptions has been attributed to App Store changes, which allow the company to include payment links inside the app for the first time.
We don’t have any current information on the number of Apple Music subscribers, as the company stopped reporting the figure once it hit 60M. Revenue is part of Services, and not itemized.
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