Spotify packed on more users than it expected in Q1 but revenue fell short of its guidance, which the company blamed on headwinds in its advertising business.
For the first quarter of 2023, the company said total monthly active users (free and paid) grew by 22% year-over-year to 515 million “driven by strength in both developed and developing markets, and nearly all age groups.” Spotify Premium subscribers grew to 210 million, a net gain of 5 million in the quarter, which beat its expectations with “outperformance across all regions, led by Europe and Latin America.”
Total revenue grew 14% year-over-year to €3.0 billion, below Spotify’s expectation of €3.1 billion “due to macro-related variability in our advertising business.” The company reported a Q1 operating loss of €156 million, which was better than the projected €194 million, helped by lower marketing spend. Spotify swung to a net loss of €225 million in Q1, compared with net income of €131 million a year earlier.
It was Spotify’s “strongest Q1 since going public in 2018” and the second-largest quarter of MAU growth in its history, CEO Daniel Ek tweeted.
Spotify’s overall MAU net additions of 26 million in the quarter were 15 million above guidance — its highest Q1 gains ever and the fifth straight quarter of accelerating growth. Paid subscriber net additions of 5 million also reflected a “material uptick” versus the year-earlier trend and were 3 million above guidance. Spotify’s previous Q1 guidance projected 500 million monthly active users and 207 million Premium subscribers.
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The company is banking on continued user growth in Q2: It expects to add 15 million MAUs to reach 530 million and to gain 7 million Premium subscribers to hit 217 million in the June quarter. Spotify forecast Q2 revenue of €3.2 billion and an operating loss of €129 million.
In Q1, Spotify’s ad revenue came in at €329 million, up 17% year over year but down 27% sequentially. Podcast ad revenue grew nearly 20% year over year, driven by original and exclusive podcasts where sold impressions grew “strong double-digits” and CPMs (cost per thousand impressions) increased in “high single-digits.” Subscription revenue was up 14% year over year but flat sequentially to €2.7 billion.
Last month at its Stream On event, Spotify launched what it touted as the biggest app redesign to date, featuring a new interface with a vertical feed designed to promote discovery of new audio content. The company also highlighted the Q1 beta launch of AI DJ for users in North America, “strengthening our efforts in personalization.” In addition, the company announced that all-time payouts to music-rights holders were approaching $40 billion, claiming it pays nearly 70% of music revenue back to the industry.
As part of its cost-cutting moves,Spotify in January announced a 6% cut of its headcount, laying off about 600 employees.The company took severance charges of €41 million in Q1 related to the layoffs. The company also is shutting down Heardle on May 5, less than a year after Spotify acquired the name-that-tune game.
On the company’s Q3 earnings call in October, Ek saidSpotify was considering raising prices on its U.S. subscription plans, following increases by Apple Music and YouTube Premium — but the company hasn’t provided any indication since about when it might enact a price hike. Spotify’s individual tier costs $9.99/month in the U.S., a price that hasn’t changed since the audio streamer launched the service in 2011.
Ek, on the Q1 call Tuesday, said “we’d like to raise prices in 2023” in regions like the U.S., after Spotify last year increased rates in 46 markets last year. But the CEO reiterated that price hikes were contingent on Spotify’s ongoing negotiations with music labels. “When the timing is right we will increase [subscription prices],” Ek said.
