Spotify Ends First Quarter as a Public Company With 75 Million Paying Subscribers

A trading post sports the Spotify
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Spotify released its first-ever earnings report as a public company Wednesday, revealing that it ended the quarter with 75 million paying subscribers, and revenue of €1.139 billion (around $1.36 billion). The company had 170 million monthly active users in March.

These overall results weren’t really a surprise to anyone, as Spotify had given pretty detailed guidance on its first-quarter earnings at the end of March. However, a closer look at the numbers showed some signs that apparently made Wall Street nervous:

Spotify’s revenue grew 26 percent year over year, but declined 1 percent quarter-over-quarter. Spotify’s stock price fell around 7.5 percent in after-hours trading immediately following the release.

The earnings report also once again showed that Spotify is first and foremost generating revenue with paid subscriptions, and that it has to deal with highly seasonal ad revenue. Subscriber payments for the quarter amounted to €1.037 billion, whereas advertising revenue only brought in €102 million, the latter being down 22 percent quarter-over-quarter.

Spotify’s gross margin for the quarter was 24.9 percent, compared to 11.7 percent last year — a change that can be attributed to the company’s new deals with major labels.

The company’s operating loss was €41 million ($49 million) for the quarter. This equaled a loss of €1.01 ($1.21) per share.

Spotify expects to end Q2 with 79-83 million paying subscribers, an a total of 175-180 million. At the end of 2018, it forecasts to have 92-96 million paying subscribers, as well as 198-208 million monthly active users.

Company CEO Daniel Ek used Wednesday’s earnings call to assure consumers as well as investors that the company didn’t have any plans to increase its prices soon. “Price increase isn’t a focus in the near term for us,” he said.

Ek’s comment came in response to recent reports that the company has been testing higher prices in Norway. Ek tried to downplay those tests. “We experiment a lot,” he said, adding that the company had hundreds of product and other tests at any given point.  “This test just happened to be a bit more public,” he said.

Asked about Apple Music’s rapid growth, Ek said that he doesn’t expect it to negatively impact Spotify. “We think multiple services will exist in the market,” he commented.

Finally, Ek commented a bit about Japan, a market where the company launched in late 2016. Japan has been traditionally seen as a tough market to crack for Western music services, as consumers still spend significant amount of money on CDs, often preferring local artists over international releases.

However, Ek said that the country’s music fans would ultimately come around to embrace streaming. “Japan is a long-term opportunity for us,” he said. “It’s a market that we are excited about.”