Spotify has achieved its second consecutive quarterly profit, marking significant progress in its journey toward consistent profitability, even as user growth showed signs of slowing. The audio streaming giant’s stock (SPOT) surged nearly 15% in premarket trading, reaching over $339, as investors reacted positively to the news.
In an interview, Chief Executive Daniel Ek confirmed that Spotify is working on a long-awaited, more expensive subscription tier. This new offering will include high-fidelity lossless music, which maintains the integrity of the original audio during compression for streaming. Ek expressed confidence in the potential of this new tier, saying, “There’s a good chunk of people paying for Spotify that would gladly pay for a much better version of Spotify. We think there’s huge potential in that group of people.”
Ek further explained that a “great subset” of Spotify’s existing subscriber base might be willing to pay an additional $5, increasing their total subscription price to $17 or $18 per month. This would provide them with features like hi-fi music and AI-driven playlisting.
According to reports from The Wall Street Journal, Spotify is also developing new music remixing tools, planned for inclusion in this ultra-premium tier. These tools are expected to launch later this year, as the company works on securing necessary licenses.
After years of focusing on subscriber growth and expanding beyond music streaming into podcasts and audiobooks, Spotify has shifted its attention to controlling costs and achieving lasting profitability. Company executives have stated that Spotify aims to be consistently profitable this year.
Spotify reported a profit of €274 million (approximately $298 million) for the April-June quarter, or €1.33 per share. This exceeded analysts’ expectations of €1.05 per share, according to FactSet. The company also announced that its gross margin exceeded guidance for the June quarter and is projected to reach 30.2% in the third quarter. Spotify had previously set a goal of achieving 30% gross margins between 2025 and 2027 during its 2022 investor day.
To support its audiobook business, Spotify raised prices in several markets, including the U.S., during the second quarter.
Key Highlights from Spotify’s Earnings Report
– Monthly Active Users: Grew by 14% to 626 million, slightly below the guidance of 631 million, as the company scaled back on some marketing efforts.
– Premium Subscribers: Increased by 12% to 246 million, exceeding expectations by 1 million.
– Average Revenue Per User: Rose by 8% to €4.62, driven by recent price hikes. However, this metric has faced pressure from discounted plans and lower prices in emerging markets.
– Ad-Supported Revenue: Increased by 13% to €456 million, with growth observed across both music and podcasts.
– Overall Revenue: Climbed by 20% to €3.8 billion, aligning with the company’s guidance.
Spotify’s recent achievements and strategic initiatives signal a promising path toward consistent profitability. By innovating with premium features and managing costs, Spotify is not only solidifying its position in the market but also paving the way for sustainable growth. As the company continues to evolve its offerings and expand its user base, investors and subscribers alike can anticipate exciting developments in the months ahead.
