Q3 earnings of Spotify

Spotify Reports Impressive Fiscal Q3 Earnings Amidst Strategic Shifts

Spotify (SPOT) unveiled its fiscal third-quarter (Q3) earnings on Tuesday, surpassing expectations on both revenue and profit fronts. The music streaming giant, in a bid to enhance profitability, implemented reduced investments in podcasting and initiated price hikes.

The company marked a notable milestone, reporting a profit of 65 million euros ($69.1 million), or 0.33 euros per share, for Q3. This stands in stark contrast to analyst projections of a loss of 0.20 euros per share, and is a considerable improvement from the year-ago period’s loss of 166 million euros, or 0.86 euros a share.

This profit is the company’s first in over a year, indicating a successful execution of recent pricing adjustments and more efficient spending in personnel and marketing.

The robust performance was further underlined by strong margins, with gross margins at 26.4%, slightly above the guided 26%. Spotify anticipates a marginal uptick to 26.6% in Q4, with long-term projections aiming for a range between 30% and 35%, as the company expands its podcasting and advertising ventures.

Total revenue for the quarter reached 3.36 billion euros, marking an 11% increase from Q3 2022 and surpassing Wall Street forecasts of 3.3 billion euros. The company provided an optimistic outlook for Q4 revenue at 3.7 billion euros.

However, while overall revenue surged, average revenue per user (ARPU) for premium subscriptions saw a 6% decline to 4.34 euros. This dip was attributed to discounted plans and reduced prices in emerging markets, partially offset by the late-quarter price adjustments.

In terms of user figures, Spotify outperformed estimates, boasting 574 million monthly active users (MAUs), a 26% year-over-year surge. The net gain of 23 million users represents the second-highest Q3 increase in the company’s history. Forecasts for Q4 MAUs are slightly above estimates at 601 million.

The number of premium subscribers also exceeded expectations, climbing 16% year-over-year to 226 million, well above the anticipated 224 million. Spotify foresees this figure rising to 235 million in Q4.

Another vital metric, free cash flow, exhibited substantial growth both annually and quarterly, recording 216 million euros compared to 9 million euros in the prior quarter and 35 million euros in the year-ago period.

Following the Q3 earnings release, the stock of Spotify initially surged in pre-market trading but subsequently retracted, showing a decrease of over 2% at the latest update.

In the preceding quarter, Spotify implemented long-awaited price adjustments, raising the cost of its ad-free premium subscription plan by $1 to $10.99 per month. The Duo plan saw a $2 hike to $14.99, while the family plan increased by $1 to $16.99. The student plan also experienced a $1 increase to $5.99 per month.

This news follows similar price hikes by competitors Apple Music (AAPL), Amazon Music (AMZN), and YouTube Music (GOOGL).

Analysts have expressed optimism about Spotify’s future after the company committed to enhancing profitability from 2023 onwards, with a focus on gross margin and operating income.

Spotify’s strategic shift away from heavy podcast investments, which saw them allocate $1 billion over the past four years, coupled with prudent cost-cutting initiatives and the recent introduction of free audiobooks, has notably impacted its financial performance. The stock, having plummeted by 70% in 2022, has rebounded impressively, showing a 100% year-to-date increase and a 75% year-over-year surge. Nonetheless, it remains more than 50% below its record high of $364.59 in February 2021.
Source: Yahoo Finance

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