Spotify reports first profitable quarter in two years, driven by global growth & pricing strategy

Spotify, the audio streaming service, has reached a significant financial milestone, posting an operating profit of €32 million for the Q3 of 2023. This achievement marks the company’s return to profitability after a two-year hiatus. In Q3 2021, Spotify last reported an operating profit of €75 million, but the subsequent quarter in 2023 saw a challenging operating loss of €247 million.

A key driver of Spotify’s resurgence is said to be its strategic decision to implement a premium service price increase in over 50 markets, including the United States, Canada, Australia, France, and the United Kingdom during the quarter.

Spotify’s profitability was further bolstered by a higher gross margin, which stood at 26.4 percent for the quarter, marking a 166 basis point increase compared to the previous year.

Lower-than-expected expenses on marketing and personnel also played a crucial role in the company’s journey back to profitability.

Spotify’s total revenue surged by 11 percent year-on-year (YoY) to reach €3.4 billion for the quarter. When accounting for constant currency fluctuations, this growth amounted to an impressive 17 percent YoY increase.

The service added 23 million monthly active users (MAUs) in Q3 2023, representing its second-largest Q3 net addition in its history. The total user base expanded by 26 percent YoY to reach 574 million, driven by robust yearly growth in all regions, with remarkable performance in Latin America and the Rest of the World region, encompassing India.

Globally, paying subscribers increased by 16 percent YoY, reaching 226 million subscribers. All regions witnessed remarkable results, with North America and Latin America leading the way.

Spotify’s primary source of income, subscription revenue, grew by 10 percent YoY to €2.91 billion for the quarter, primarily fuelled by subscriber growth and the initial impacts of the price increases. However, the average revenue per user from the subscription business dipped by 6 percent YoY to €4.34 for the quarter due to factors like product and market mix, although partially offset by price increases.

The platform’s advertising business also demonstrated substantial growth, increasing by 16 percent to €447 million for the quarter, contributing to approximately 13.3 percent of the company’s overall revenues. The growth was predominantly driven by a nearly 20 percent YoY increase in music advertising revenue.

The streaming platform recently announced features restrictions in India for its free-tier users, including the removal of features such as song repeat functionality, song seeking within tracks, song order customization, and the ability to disable the “smart shuffle” feature.

Spotify introduced innovative features, including an AI-driven DJ feature for Premium users in over 50 markets and AI-powered voice translations for select podcasts. The company also launched features like ‘daylist,’ a dynamic playlist updated multiple times daily based on the time, and ‘Jam,’ a social listening feature for collaborative playlists with friends.

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