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Spotify Misses Overall Q2 User Target, Ad Revenue Jumps 110%

  2024-02-29 varietyTodd Spangler3140
Introduction

Spotify, citing ongoing headwinds from the COVID pandemic, fell short of its total monthly user growth goal in the secon

Spotify Misses Overall Q2 User Target, Ad Revenue Jumps 110%

Spotify, citing ongoing headwinds from the COVID pandemic, fell short of its total monthly user growth goal in the second quarter of 2021.

The audio-streaming giant netted 7 million paying subscribers in Q2, growing Premium customers 20% year over year to reach 165 million, in line with expectations. Total monthly active users grew 22%, to 365 million in the quarter (a gain of 9 million) — which was just below its forecast.

One bright spot: Spotify’s ad revenue more than doubled, which the company said was helped by podcast ad sales including for “The Joe Rogan Experience” and the Obamas’ Higher Ground podcasts.

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The company’s previous Q2 guidance was for overall monthly users of 366 million-373 million and 162 million-166 million paying subscribers.

“While MAU growth was softer than expected in the first half of the year, we are seeing that trendline reverse and all the leading indicators show that we are back on track,” Spotify CEO and founder Daniel Ek said in announcing the results. “By accelerating our pace of innovation and investing for the long term, we continue to cement our standing as the preferred audio platform around the world.”

Spotify is still on track for strong MAU growth for full-year 2021 that will outpace 2018 and ’19, coming off a bumper crop of net adds last year, Ek told analysts on the Q2 call. He said he remains optimistic that over the long term the streamer can amass a base of 1 billion users.

In discussing the lighter user adds in the quarter, Spotify said in its letter to shareholders, “COVID-19 continued to weigh on our performance in several markets, and, in some instances, we paused marketing campaigns due to the severity of the pandemic.” Specifically, MAU growth in India, Brazil and parts of Southeast Asia was below expectations, according to Ek. The company also blamed part of the shortfall on “a temporary issue related to user intake on a third-party platform” related to email verifications.

The company issued bullish guidance for Q3 and Q4 user and subscriber growth. Spotify expects total MAUs of 377 million-382 million and paid subscribers of 170 million-174 million for the current quarter. For Q4, it projected 400 million-407 million overall MAUs and 177 million-181 million Premium subscribers.

Q2 revenue of €2.33 billion (about $2.75 billion) was up 23% year over year, due to “significant advertising strength and subscriber outperformance.” Spotify Premium revenue grew 17% to €2.06 billion ($2.43 billion) and ad-supported revenue rose 110% to €275 million ($325 million).

Spotify posted a net loss of €20 million ($24 million) for the quarter, an improvement from a net loss of €356 million ($420 million) in Q2 2020. It reported operating income of €12 million ($14 million), versus an operating loss of €167 million ($197 million) in the year-ago period.

At the end of Q2, Spotify had 2.9 million podcasts on the platform, up from 2.6 million at the end of Q1. The percentage of monthly active users that listened to podcasts improved “modestly” relative to Q1, when about 25% of total users listened to podcasts, the company said.

Among MAUs that engaged with podcasts in Q2, listening was up more than 30% year-over-year on a per-user basis. During the quarter, podcast share of overall consumption hours on Spotify also reached an all-time high, with total time spent listening to podcasts increasing 95% in aggregate, the company said.

Spotify’s podcast advertising growth — which topped its internal forecast — benefited from a triple-digit year-over-year gain at existing Spotify studios (The Ringer, Parcast, Spotify Studios and Gimlet) along with contributions from the Megaphone acquisition, the exclusive licensing of Joe Rogan’s controversial and popular podcast, and projects from the Obamas’ Higher Ground.

On the earnings call, Ek said that podcast ad revenue in Q2 grew 627% year-over-year, or 200% on an “organic basis” (but didn’t disclose revenue figures). He admitted he hasn’t focused much of his time on Spotify’s ad business, but said it is the second big revenue driver for Spotify: “The potential is significant and the trendline is clear.”

During the quarter, the company announced exclusive licensing deals for Alex Cooper’s sex-positive “Call Her Daddy” podcast — which sources said was worth more than $60 million over three years — and Dax Shepard’s “Armchair Expert,” both of which are now exclusively on Spotify. The company said “The Joe Rogan Experience” continues to perform above expectations, and The Ringer shows such as “The Bill Simmons Podcast” grew consumption “significantly” as the NBA headed into the playoffs.

Ek said “where possible,” Spotify will look to land exclusive podcast deals, but said the company will be “extremely opportunistic” about such pacts.

On the call, Ek was asked about a report that Spotify was considering expanding into live events. While he declined to comment on “tests” the company is conducting, he said that “we’ve been involved in live events for many, many years.” He noted that musicians can sell concert tickets through Spotify and that Spotify’s Rap Caviar has hosted live shows in U.S. and U.K. In addition, earlier this year, the company ran a limited virtual concert series with tickets priced at $15. Ultimately, he said, “We want to work with as many partners as we can… to turn listeners into fans and turn fans into superfans.”

Spotify also called out Olivia Rodrigo’s new album, “Sour,” which in May set the record for biggest streaming debut for any album on the platform so far in 2021 with more than 63 million first-day streams worldwide.

(By/Todd Spangler)
 
 
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