Spotify grew its customer base to 172 million paid subscribers and 381 million total monthly active users (MAUs) in the three months ending Sept. 30, the company reported Tuesday (Oct. 27). Total revenue in the third quarter was 2.5 billion euros ($2.90 billion in current dollars), up 27% on the same period the previous year and a 7% rise on Q2’s 2.33 billion euros ($2.75 billion) tally.
Most of Q3 revenue came from subscriber income, which grew 22% y/y to 2.178 billion euros ($2.53 billion), which was at the top of the company’s earlier guidance. Ad-supported revenue had another solid quarter, compared to the pandemic lows of last year, increasing 75% y/y (and 7% q/q) to 323 euros ($374 million).
Spotify’s user totals saw a net increase of 7 million paid users and 16 million MAUs compared to the second quarter. Both of those metrics landed in the mid-range or high-end of guidance, with premium growth aided by new promotional partnerships with several global phone carriers in Q3. The company said it experienced double digit y/y growth in active users in “all regions,” including “above-plan growth” in markets like the Philippines and Indonesia and momentum in India, South Korea, Bangladesh and Pakistan.
The company opted to maintain its outlook for MAUs and premium subscribers by the end of 2021 to 400-407 million and 177-181 million, respectively.
“We had started to see MAU strengthen in the last half of Q2 and I’m pleased this trend continued throughout Q3,” said Spotify CEO and founder Daniel Ek in prepared remarks. “I believe the choppiness in the first half of the year was primarily due to COVID and is largely behind us. All signs show that we are back to consistently delivering against our forecast. But we’ve also learned from the last two quarters and are responding faster to changes — most notably in a key market like India where we are now seeing a nice recovery.”
He added, “As we head into what’s historically our biggest quarter of the year, we are all hands on deck to make sure the positive trend continues. And, I feel really good about where we stand across all of the other aspects of the business overall.”
Thanks to an assist from price increases, the closely-watched average revenue per user (ARPU) metric for premium subscribers was up 4% y/y to 4.34 euros ($5.03). According to the company, its average monthly churn for premium subscription was down for the quarter but up y/y when compared to last year’s lows. “We are pleased with the trends in churn and continue to expect full year 2021 churn to be down versus 2020,” it said.
Gross margin, the remainder after royalties and other content associated, was 26.7% of total revenue compared to 28.4% in Q2 — which it said was above its guidance range for the frame. The company said the improvement was aided by a revenue shift towards podcasts across the platform and other cost-saving efficiencies.
Spotify reported operating profit of 75 million euros ($87), up from 12 million in Q2. Operating expenses met expectations and totaled 593 million euros ($687.5) for the quarter, down from 651 million euros reported in Q2. Spotify currently has 7,431 full time employees, up from 7,085 last quarter.
Spotify said that its business has more than 3.23 billion euros ($3.75 billion) in liquidity and that its free cash flow for the nine months ended Sept. 30 was 174 million euros ($201 million).
As for content, Spotify highlight a 3 million net gain in podcasts across the platform, to 3.2 million. The company said more active users are engaging with podcasts than ever and that consumption trend were up 20% — pushing the segment’s share of overall hours on the platform to all-time highs (though the exact percentage is unclear).
Spotify’s Financial Metrics (Q3 2021 vs. Q3 2020)
- Revenue: 2.501 billion euros, up 27% year over year from $1.97 billion euros
- Gross margin: 27% vs. 24.8%
- Operating profit (loss): 75 million euros, up from -€40 million euros
- Free cash flow: 99 million euros, up from 103 million euros
Listener Metrics (Q3 2021 vs. Q2 2021)
- Paid subscribers: 172 million, up 4% from 165 million in Q2 2021
- Ad-supported listeners: 220 million up 5% from 210 million in Q2 2021
- Total listeners (MAUs): 381 million up 4% from 365 million in Q2 2021
Q4 2021 guidance
- Revenue: 2.54 to 2.68 billion euros
- Subscribers: 177 million to 181 million
- MAUs: 400 to 407 million
After successfully navigating the first year of the pandemic, Spotify’s user growth slowed in the first half of 2021, especially in COVID-wracked areas such as India, Brazil and Southeast Asia, and in recently launched markets. By cutting back on advertising in India during its COVID-19 crisis, for example, Spotify stalled its user growth. Instead, Spotify plans to increase ad spending in the second half of 2021, said CFO Paul Vogel during the company’s July 28 second quarter earnings call.
“In hindsight, we likely underestimated the acceleration we saw in MAU growth in 2020,” said CEO Daniel Ek during that same call.
What’s more, a problem with a third-party email verification platform cost Spotify about 2 million users, said Vogel. In all, Spotify estimated it lost about a quarter of its growth between the first and second quarters.
What began as a music streaming platform has evolved into a multi-faceted audio platform that Ek wants to reach more than 1 billion monthly users. To that end, Spotify has invested heavily in podcast content — in-house creation and acquisitions of production houses — and self-serve tools to attract millions of creators to the platform. In March 2021, Spotify branched out to live audio with its acquisition of Locker Room, a group audio app like Clubhouse, which it revamped and launched as Greenroom in June.
Additional reporting by Glenn Peoples.