Spotify managed to eclipse forecasts and add 6mn subscribers to its service in the second quarter, defying the slowdown at Netflix that has weighed on the music company’s stock price.
The company ended June with 188mn subscribers, beating its guidance for 187mn. Total users — which includes those who do not pay — also beat expectations, rising to 433mn.
Shares in Spotify jumped more than 6 per cent in pre-market trading on Wednesday.
Spotify’s stock has been battered by the stalling of Netflix’s subscriber growth, which fuelled investor fears over the business model of streaming. Shares have fallen more than 50 per cent this year, shrinking its market capitalisation to $20bn — a third of its record value that was reached during the pandemic.
The company has also been hit by macroeconomic concerns over inflation and the war in Ukraine, which prompted Spotify to shut down its operations in Russia. Spotify estimates it lost 600,000 subscribers as a result of its exit from the country. The company plans to slow hiring by 25 per cent in the second half of the year because of rising inflation and concerns about a potential recession.
In the weeks since Netflix’s stumble, chief executive Daniel Ek has tried to distance Spotify from its video-streaming counterpart, telling investors in April that the two are “vastly different businesses”.
In response to investor scepticism, Spotify last month held its first investor day since going public in 2018. Ek told investors he expected Spotify to grow to 10 times its current size — reaching 1bn listeners and $100bn in revenue by 2030.
Morgan Stanley analysts this week warned that Spotify could be vulnerable to a recessionary downturn in the ad market, which could “derail the thesis”. Advertising makes up only 13 per cent of Spotify’s revenue, but it has been growing in share as the company expands into podcasts.
Despite the concerns, Spotify’s advertising revenue grew to €360mn in the second quarter, up 31 per cent from a year ago, and 28 per cent from the previous quarter.
“Advertising is a larger growth driver and key to the margin story,” said Morgan Stanley. “Podcasting as a revenue base is still fairly nascent for Spotify and should grow nicely through a slower economy, but Spotify in [2021] earned over €1bn from music advertising vs less than €200mn in podcasting.”
Spotify reported total revenue of €2.9bn in the quarter, up 23 per cent from a year ago and meeting analyst forecasts. The company posted an operating loss of €194mn, slightly better than it had forecast.
