New market launches in Russia and a number of surrounding markets, coupled with a return to growth for Spotify’s advertising business helped boost revenues at the streaming giant during the third quarter, according to the company’s latest financial results.
In the three-months ending Sept. 30, Spotify grew its customer base to 144 million paid subscribers and 320 million total monthly active users (MAUs). Total revenue in the third quarter was €1.97 billion ($2.29 billion in current dollars), up 14% on the same period the previous year and a 5% rise on Q2’s €1.89 billion ($2.22 billion) tally.
The vast majority of Q3 revenue came from subscriber income, which grew 15% y/y to €1.79 billion ($2.08 billion), in line with the company’s earlier guidance.
Significantly, advertising revenue exceeded expectations, rebounding after Q2’s pandemic-related plummet when sales dropped 21% to €131 million ($152 million). That tally jumped back up to €185 million in Q3, representing a 41% rise on the previous quarter and 9% growth y/y.
Popular music releases during the period included Taylor Swift’s Folklore album, which set a Spotify record for the most first day album streams by a female artist, and BTS’s first all-English-language single, “Dynamite,” which registered the biggest first day globally on Spotify for a single in 2020. New music releases were up 13% compared with Q2 when many artists postponed releases due the health crisis.
“Spotify’s flywheel is accelerating faster with every new user and creator that comes on our platform,” said Spotify CEO and founder Daniel Ek in prepared remarks. “We’re building the world’s largest audio network and it’s clear that our strategy is working.”
Here’s Spotify’s topline third quarter results:
• Total revenue grew 14% Y/Y to €1.97 billion ($2.29 billion)
• Total monthly active users (MAUs) rose to 320 million, up 29% Y/Y, exceeding company expectations
• Premium subscribers are up to 144 million, generating €1.79 billion ($2.08 billion)
• Ad-supported sales bounced back to €185 million, up 41% on Q2 at the height of the pandemic
• Operating loss stood at €40 million, compared to Q2’s €167 million ($196 million) operating loss
Breaking down Spotify’s rise in total monthly users (premium and ad-supported), the company reported growth in North America and Europe, while Latin America and Rest of World saw the fastest growth, up 30% and 51%, respectively. Successful marketing campaigns in India and “stronger than expected” results from Spotify’s July launches in Russia and 12 surrounding markets further lifted Spotify’s global user base.
Reflecting on the impact of the coronavirus pandemic, Spotify said it saw a “slight shift in Q3 seasonality” among several of its larger European markets as summer demand was pulled forward into the March and April lockdown periods.
Global consumption hours surpassed pre-COVID levels during the third quarter and all regions have fully recovered, Spotify said. It also reported that home listening on connected devices, which saw a spike during lockdown, remains above pre-COVID levels, while in-car listening hours are now above the pre-COVID peak.
Among premium subscribers, average monthly churn rate for the quarter fell below 4% for the first time. Within Premium, average revenue per user (ARPU) of €4.19 ($4.83) in Q3 was down 10% Y/Y (down 6% Y/Y in constant currency terms).
Total MAUs by region in Q3
Europe – 34%
North America – 25%
Latin America – 22%
Rest of world – 19%
Subscribers by region in Q3
Europe – 40%
North America – 29%
Latin America – 21%
Rest of world – 10%
Spotify said its rebound of advertising revenues was led by its podcast and Ad Studio channels with September finishing particularly strong as business activity returned to “a more normalized state” after the pandemic-impacted second quarter.
As of Q3, Spotify had just under 2 million podcasts on the platform (up from more than 1.5 million podcasts in Q2) with 22% of its global user base accessing podcast content in the three-month period, more-or-less level with Q2.
The Michelle Obama Podcast, which launched in July, was the platform’s most popular summer podcast globally, while The Joe Rogan Experience outperformed expectations following its high-profile September bow, Spotify said, becoming the number one podcast in all its English-speaking markets. “We look forward to the start of our exclusivity period for this podcast by the end of this year,” said the company in its earnings report.
Looking ahead to the next quarter, Spotify said it was confident in the financial position of the business “as we look at the current and future uncertainty surrounding the global health crisis” and had €2 billion ($2.32 billion) in cash and cash equivalents at end of Q3.
Spotify expected its global user base to grow to between 340 and 345 million users in Q4 with subscribers totaling between 150 and 154 million, drawing in a projected revenue of €2 to €2.2 billion.