Spotify added more users on both its free and paid tiers in the third quarter than expected, with the company citing particular strength in Latin America for the outperformance.
Total monthly active users (MAUs) grew 20% to 456 million — 6 million above Spotify’s prior guidance — a net addition of 23 million, representing its largest Q3 growth to date. Spotify Premium subs reached 195 million, a gain of 7 million in the period (about 1 million more than anticipated) and up 13% year over year.
“There is a lot of global uncertainty, but our business continues to perform very nicely around the world,” CEO Daniel Ek said in prepared remarks about the quarter. “With one quarter left in a year that has seen war, a lingering pandemic, inflation, supply chain disruption and threats of a global recession, I am really proud of all that we have accomplished and that despite all of this, we are precisely where we thought we’d be.”
On the earnings call, Ek said Spotify is looking at raising prices on its U.S. subscription plans, following increases by Apple Music and YouTube Premium. “[I]t’s something we will [discuss] with our label partners,” he said. “I feel good about this upcoming year, and what it means about pricing for our service.”
Total revenue was €3.04 billion, slightly ahead of guidance, representing 21% year-over-year growth. Premium revenue grew 22% to €2.7 billion. Ad-supported revenue grew 19% to €385 million, reflecting double-digit growth across all regions with the exception of Europe where “we saw the impact of challenging regional economic conditions,” Spotify said.
However, Spotify’s gross margin in Q3 came in below expectations at 24.7%, which the company said was “affected by an accrual adjustment from an anticipated renewal of a large publishing contract outside the U.S.,” along with “some softness in advertising and currency fluctuations.” Spotify reported an operating loss of €228 million, which in addition to other factors the company attributed to higher payroll costs with the expansion of its global ad sales team; platform investments; and the effect of recent acquisitions including Podsights, Findaway, Sonantic, Chartable, Whooshkaa and Heardle.
Spotify reported a Q3 net loss of €194 million, or €0.99 per share, higher than analyst expectations of a loss of €0.85 per share, according to Refinitiv. On the worse-than-expected loss, shares were down more than 5% in after-hours trading Tuesday.
For Q4, Spotify expects revenue of €3.2 billion and an operating loss of €300 million, which includes €95 million in additional expenses that the company said are due to unfavorable currency exchange rates. The company projected 202 million paid subs (up 7 million sequentially) and total MAUs of 479 million (up 23 million sequentially).
At the end of Q3, Spotify had 4.7 million podcasts on the platform, up from 4.4 million the previous quarter. The audio streamer said the number of users who listened to podcasts grew in the “substantial double-digits” year over year, but didn’t quantify the increase.