LONDON – Spotify’s business “remains very healthy” despite the global uncertainty caused by the COVID-19 pandemic, the streaming giant reported in its first quarter financial results.
In the three-months ending March 31, Spotify grew its user base to 130 million paid subscribers and 286 million total monthly active users. Total revenue in the first quarter was €1.85 billion ($1.99 billion in current dollars), up 22% on the same period the previous year.
Of that revenue tally, the vast majority came from subscriber income, which grew 23% to €1.7 billion ($1.8 billion), slightly outperforming the company’s expectations.
Ad-supported revenues grew 17% year-on-year to €148 million, but fell short of Spotify’s forecasts as a result of disruption caused by the global health crisis, particularly in the final three weeks of March.
Spotify said that prior to COVID-19, it was in a strong position to exceed its advertising revenue targets for the quarter. “However, in March we saw deceleration across all sales channels as previously booked business was cancelled or paused, and Programmatic buyers pulled back spend,” said the company.
Ad-supported revenues in the final three weeks of the quarter were down more than 20% forecasted levels. Spotify said it has revised its year-end estimates as a result.
Spotify’s premium average revenue per user (ARPU) was down 6% y/y to €4.42 ($4.72) due to the continuation of longer free trials rolling over from the fourth quarter of 2019.
Operating expenses totaled €489 million for the quarter, up 16% y/y, with losses totaling €17 million ($18 million), compared to €77 million ($83 million) the previous quarter.
Reflecting on the impact of COVID-19, the company said it saw a “notable decline” in daily active users in hard hit European markets like Italy and Spain beginning in late February. However, in the last few weeks listening numbers had started to rebound “and in many markets, consumption has meaningfully recovered.”
The ratio of daily active users (DAU) relative to monthly active users (MAU) also held steady during lockdown period in major markets, reported Spotify, with the average DAU/MAU ratio for the quarter higher than the corresponding period last year.
As to be predicted, the global lockdown saw a significant drop in Spotify usage on car, wearable, and web platforms, although the platform’s audience through TV and games consoles grew in excess of 50% over the same period.
The impact of coronavirus was also mitigated by a reduction in travel expenses and spending on events and campaigns. As a result of the pandemic, Spotify said it has taken steps to slow staff hiring for the rest of the year until it can better access the economic impact of COVID-19.
Looking ahead, the company said its outlook for the second quarter and remainder of the year has remained unchanged “with the exception of revenue where a slowdown in advertising and significant changes in currency rates are having an impact.”
Spotify said that the business has more than €1.8 billion ($1.9 billion) in liquidity and expects to be free cash flow positive for the year. It predicts to end the year with between 328 and 348 million monthly users and between 143 and 153 million paid subscribers.
Total revenue for 2020 is predicted to be between €7.6 billion ($8.2 billion) and €8 billion ($8.6 billion) — which is down slightly on its previous year-end forecast – with a total operating loss of between €150 million ($162 million) and €250 million ($270 million).
“Overall, despite some changes in listening patterns, we are encouraged with the trends we are seeing,” said Spotify, “and continue to be optimistic about the underlying growth fundamentals of the business.”
Speaking on a subsequent earnings call, Spotify CEO and founder Daniel Ek acknowledged the “profound” impact of the coronavirus crisis on the wider music industry.
“We know that many creators, with touring and live shows cancelled, that the pandemic has brought unthinkable levels of uncertainty into their lives,” he said. “And like every other company, we are operating in a new reality, and it is, of course, premature to say when things will return to normal, or what the normal will look like.”
“I know many are worrying how we will continue to weather this storm,” EK went on to say. “With so many unknowns, there are some questions that we simply can’t answer at this point. But I can say that I’m confident we will continue to be in a position of strength when this is behind us and that’s because of our model, our scale and our superior user experience, and, of course, our content pipeline. These are the fundamentals that have sealed our success and will continue to do so in the future.”