Music streaming platform, Spotify has seen its quarterly gross profit exceed €1 billion ($1.1 billion) for the first time, driven by tightened marketing spending, though the company fell short of its forecast for monthly active users (MAUs).
The Swedish company, known for its aggressive user growth strategies through promotions and investments in podcasts and audiobooks, shifted its focus last year towards cost-cutting measures to enhance margins and profits. These efforts included layoffs and reductions in marketing expenditures, aimed at bolstering financial performance.
Despite initial market reaction, with Spotify shares initially falling on the quarterly results, they later reversed course to rise by 8% in premarket trading on Tuesday, 23rd April. CEO Daniel Ek acknowledged the need to reinstate some marketing spend throughout the year to sustain growth, particularly in territories where the company may have scaled back too much.
Spotify’s gross margins saw a notable improvement in 2023, rising to 27.6% from 25.2%, which was partially attributed to profitability in its podcast business. The company has heavily invested in building its podcasting arm, with expenditures exceeding a billion euros, including sums for exclusive shows like “The Joe Rogan Experience”.
Ek highlighted how podcasting quickly transformed from a drag on profits to become a lucrative segment within Spotify’s business. Quarterly revenue climbed by 20% to €3.64 billion, surpassing analyst estimates.
To further boost revenue, Spotify has implemented price increases and introduced new subscription plans tailored to different consumer preferences. Ek revealed plans to introduce a music-only tier for users solely interested in music content.
While first-quarter MAUs grew by 19% to 615 million, they fell short of Spotify’s guidance and analysts’ expectations. The company forecasted MAUs of 631 million for the second quarter, slightly below analyst estimates, alongside a projected rise in gross margin to 28.1%.
Despite challenges in user growth, Spotify has continued to see growth in its premium subscribers, which have reached 239 million, meeting expectations.
