Spotify Subscription Revenue Soars in Q3, Operating Profit Hits Record High
This year's quarterly results have shown improvements in margin and profitability without sacrificing subscriber growth.
Spotify, the world’s biggest music streaming platform, isn’t showing signs of slowing down. In the third quarter, revenue hit 3.99 billion euros ($4.32 billion) and subscribers grew by 6 million, the company announced Tuesday (Nov. 12).
The Swedish music streaming company has helped revolutionize how people listen to music but until recently, it didn’t have financial results to match its market power. Reacting to investors’ demands for both growth and profitability, last year Spotify tightened its belt and laid off about a quarter of its workforce, and this year’s quarterly financial results have shown marked improvements in margin and profitability without sacrificing all-important subscriber growth.
Although revenue was slightly below Spotify’s previous guidance of 4 billion euros ($4.4 billion), operating profit was a record high of 454 million euros ($500 million), exceeding guidance by 12%. After routinely posting operating losses in previous years, Spotify’s operating profit increased 70% from the second quarter and was up more than 14-fold from the prior-year quarter.
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Likewise, gross margin — revenue less cost of sales — reached 1.24 billion euros ($1.37 billion) and improved to 31.1% of revenue, up from 29.2%, 27.6% and 26.7% in the preceding three quarters. The margin improvement was attributed to gains from premium subscriptions as well as audiobooks and ad-supported gains.
Recent price increases in the U.S. and many other markets didn’t slow subscriber growth. Spotify finished the third quarter with 252 million subscribers, an increase of 6 million from the prior quarter and 11.5% higher than the prior-year period. Subscription revenue reached 3.51 billion euros ($3.86 billion), up 20.8% year-over-year. Premium average revenue per user increased 9% (at constant currency) to 4.71 euros ($5.18).
Advertising, a key ingredient to both Spotify’s freemium music model and podcasting business, continued to lag behind subscriptions. Advertising revenue of 472 million euros ($520 million) was up 5.6% from the second quarter and up 3.5% from the prior-year quarter. Music advertising was helped by growth in impressions sold and hampered by pricing weakness. Podcast advertising also suffered from pricing weakness and benefitted from growth in impressions sold.
The results sent Spotify’s share price price soaring in after-hours trading. Following the earnings release after markets closed, Spotify shares jumped over 9% to $459. Before trading closed, the stock hit an all-time high of $419.72 and posted its best-ever closing price of $419.48, up 2.3%. The stock closed above $400 for the first time on Friday (Nov. 8) and has gained 123% in 2024.
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