Spotify Q4 Revenue Jumps as Paid Subscribers Rise 15%

Spotify shares gained 6.6% in morning trading Tuesday after the music streaming giant reported solid gains in new listeners, particularly paid subscribers, for the last three months of 2023, even as the results were depressed by a hefty charge thanks to large-scale layoffs at the end of the year.

Here are the top-line results:

• Net loss: Spotify posted a net loss of $77.3 million, sharply narrowing its 2022 Q4 loss of $288.3 million.

• Loss per share: On a per-share basis, the loss was 40 cents, compared with a loss of $1.49 per share last year, but coming in worse than the loss of 8 cents per share forecast by Zacks Investment Research.

• Revenue: Spotify reported revenue of $4.05 billion, up 20% from last year’s $3.38 billion, and handily topping the $3.96 billion expected by Zacks.

• Subscribers: The Swedish company added 28 million subscribers to bring total active monthly users to 602 million, a 23% jump from the 2023 fourth quarter. Paid subscribers rose 15% from last year to 236 million.

• Stock Gains: Spotify shares surged $14.82 to $238.07 in morning trading, after earlier hitting $248.67, their highest point since November 2021 . The stock closed Monday up 19% since the start of the year.

The strong results came at the end of a tumultuous year for Spotify as the company shifted from its strategy focused on exclusive rights to podcasts helmed by Joe Rogan and boldfaced names like Prince Harry and Meghan Markle toward more widespread distribution of its shows. Spotify renewed Rogan’s deal last week, with plans to make it accessible on Apple Podcasts, Amazon Music and Youtube.

CEO Daniel Ek noted that the company went into podcasts with multiple strategies. It found that for some shows, exclusives mattered, while for some others they didn’t. And in general, the exclusives were not driving the advertising opportunities the company sought.

“We’re in a very different position than we were a few years ago in podcasting,” he said. When the company entered the market, it made sense to lean on exclusivity to expand the audience, but now that it’s established in podcasting, wider distribution is a better strategy.

“By broadening distribution, we think we can accomplish a number of different goals,” he said, including being more aligned with creators who want to be on multiple platforms in order to get the biggest possible audience. “And then the second part is when you think about the revenue growth story on advertising,” he said, adding that the new deals the company is cutting reflect this new focus.””By broadening distribution, we think we can accomplish a number of different goals,” he said, including being more aligned with creators who want to be on multiple platforms in order to get the biggest possible audience. “And then the second part is when you think about the revenue growth story on advertising,” he said, adding that the new deals the company is cutting reflect this new focus.

That shift came with a massive round of layoffs, as the Swedish company shed its workforce by 17%, or 1,500 people in December, after slicing 800 jobs in prior rounds of layoffs earlier in the year. The job cuts resulted a $143 million charge in the quarter.

Excluding that charge, the company said adjusted operating profit was $68 million.

Spotify’s subscriber gains were the highlight of the quarter. The company said its addition of 28 million listeners was the second-largest quarterly gain in its history. Both total subscribers and premium came in about 1 million above the company’s predictions for the period. For the year, it added 113 million subscribers.

Even more importantly, premium, or paid subscribers rose by 10 million from the September quarter, topping the company’s forecast by 1 million. For the year, paid subscribers grew by 31 million. Average revenue per user rose 1%, or 5% year over year, to $5.07, the company said, reflecting subscription price increases midyear.

Another bright spot was ad-supported revenue, which the company said reached an all-time high of $552.9 million. The gains came from double-digit growth in both music advertising revenue and podcast advertising revenue.

Also among the quarter’s successes was the addition of audiobook titles to its offerings, which was expected to draw more paid subscribers. Spotify now has more than 200,000 titles available to U.S. premium subscribers.

CEO Daniel Ek pointed to the audiobooks business during the conference call with analysts. “It’s still early days, but the feedback from listeners and from the industry is extremely encouraging,” he said. Engagement is strong and subscribers appear to be exploring try titles that are out of the mainstream, giving him the view that the service is expanding audiences for those authors and genres.

“Data shows that our entry into this market has dramatically accelerated its overall growth in Q4.”

He boasted that the company quickly became the No. 2 provider of audiobooks behind Audible. “This is exactly what we set out to do, grow the pie for the publishing industry and expand the interest in audiobooks to an entirely new set of listeners. More to come as this takes hold and we roll it out to additional markets.”

For the full year, Spotify posted a loss of $587.1 million, or $3.01 per share, on revenue of $14.62 billion.

“While I’m pleased with the level of growth we saw in 2023, perhaps what is even more gratifying is that it also marked a very different year for Spotify, a true evolution in how we operate our company, a year where we started to prove that we’re not just a company that has an amazing product, but one that also is building a great business,” Ek said during the call. “And there’s no question that we had to make some difficult decisions to put us on track to achieve our goal of being a consistently profitable company. But by taking these steps, I’m super confident in where we’re heading.”

Spotify predicted it will add 16 million new subscribers in the current quarter, rising to 618 million by the end of March, including 3 million new premium subscribers.

It expects revenue for the first quarter to reach $3.97 billion, compared with a forecast of $3.89 billion from Zacks. Ek said the gains would reflect a continuation of the positive trends of 2023, as subscriber growth drives revenue growth both from premium subscriptions and advertising.

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