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Spotify Now Has Over 100 Million Subscribers, Narrows Q1 Losses

Spotify grew its paid subscriber rolls by 32% in the first quarter of 2019 — reaching 100 million Premium customers — while the streaming-music company narrowed its losses and beat Wall Street expectations on the top line.

Spotify shares were up as much as 5% in premarket trading Monday on the results before falling 1.5% in regular trading.

The company reported total Q1 revenue of $1.69 billion (€1.511 billion), topping analysts’ expectations of $1.64 billion. Spotify posted a net loss of $158 million (€142 million), versus a net loss of €169 million ($189 million) in the year-earlier period. The net loss of 88 cents per share (€0.79) missed Wall Street projections of EPS of 39 cents (€0.35). According to Spotify, the uptick in its share price during Q1 “significantly increased our operating expenses” for the period because the stock bump increased payroll taxes associated with employee salaries and benefits, including stock-based compensation.

Spotify’s paid-subscriber base of 100 million is roughly double rival Apple Music, which had 50 million paid subs worldwide at the beginning of April, according to a Wall Street Journal report. But Apple Music is growing faster, according to the report, tallying 28 million U.S. subscribers vs. Spotify’s 26 million in the States. In Q1, Spotify reported about 30 million Premium subs in North America (but the company doesn’t break out subscriber figures for U.S. alone.)

“Competition is really not a big factor for us,” CEO Daniel Ek said on the earnings call Monday, noting that Spotify has had rivals in the music-streaming arena going back to Myspace. “It’s more about growth” and working with music content companies to adapt to the explosion of digital streaming. Ek added that Spotify is interested in working with Hulu — now majority owned by Disney — as it explores launching in international markets.

Asked about the status of Spotify’s anti-competition complaint against Apple filed in March with the European Union, Ek said, “We cannot yet say what the response will be.” But, he added, “What I can say personally from speaking to lots of regulators [is that] this is the moment when these issues need to be debated.”

In the first quarter, Spotify’s total monthly active users grew 26% to 217 million, slightly lower than the midpoint of its guidance range. The company said it now has more than 2 million users in India, after launching in the country in late February (where more than 1 million users signed up for Spotify in its first week in the market).

Ek downplayed the impact of Spotify not having music rights in India from two big suppliers — Warner/Chappell Music Publishing and India’s Saregama record label — saying “as evidenced by our growth, we’re doing quite OK” with 2 million members in the country, above the company’s expectations. “Obviously… the more content we can get on the platform” will yield even faster growth in India, Ek said.

The company hit the top end of its guidance range for Premium subscriber additions, which Spotify said was driven by “a better-than-plan promotion in the U.S. and Canada and continued strong growth in Family Plan.” It also said it saw strong growth from the expansion of its Google Home Mini promotion, and the effective price cut of its Spotify Premium-Hulu bundle offering in the U.S. to $9.99 monthly (vs. $12.99).

For Q2 2019, Spotify projected total monthly active users of 222 million-228 million (up 23%-27%) and total premium subscribers of 107 million-110 million (up 29%-34%). It forecast total revenue of $1.69 billion-$1.91 billion (€1.51-€1.71 billion, up 18%-35%) and an operating loss of $16.7 million-$106 million (-€15 million to -€95 million).

Spotify has moved aggressively on the podcast front, and disclosed Monday that it had acquired scripted podcast studio Parcast (Cutler Media) last month for about €50 million ($56 million). Spotify spent roughly $344 million (€308 million) to acquire podcasting companies Gimlet Media and Anchor FM in Q1. The combined $400 million (€358M) price tag for the three podcast companies was roughly equal to Spotify’s cumulative free cash flow over the last three quarters.

Ad-supported revenue grew 24% in Q1, to $141 million (€126 million) — which was short of Spotify’s expectations. The shortfall was primarily in the U.S. and related to its pricing of sponsored sessions-video product, according to the company. “We have course-corrected and are seeing strong growth across the ads business in Q2,” Spotify said in announcing earnings.

Spotify said it expects revenue from podcasts to “accelerate” through 2019, after generating a “small incremental benefit from podcasts during Q1 following our acquisitions of Gimlet Media and Anchor in February” and the rollout of Spotify original podcasts including “The Joe Budden Podcast,” “Amy Schumer Presents: 3 Girls, 1 Keith,” and “Dope Labs.”

“Over time, our ambition is to develop a more robust advertising solution for podcasts that will allow us to layer in the kind of targeting, measurement, and reporting capabilities we have for the core ad-supported business,” Spotify said.

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