Spotify Earnings: Everything You Need to Know
Spotify reported solid Q3 results with both total MAUs and Premium Subscribers just beating estimates, but the stock took a hit due to weakening Average Revenue per User.
Audience growth: The net addition of 6.4 million premium subscribers (144 million total) topped estimates and was aided by a record low churn rate of 3.7%. Additionally, the audio-streaming giant added 21 million monthly active users, bringing total MAUs to 320 million. Spotify benefited from its most successful new market launch ever in Russia. Spotify also posted positive ad revenue growth each month of the third quarter compared to a year earlier.
“Overall, we view 3Q:20 results as further proof of Spotify's ability to grow its audience, increase paid conversion, and improve ad monetization through difficult economic conditions, reinforcing our view that Spotify will emerge from COVID-19 stronger than it went in,“ said Stifel analyst John Egbert.
ARPU down, but not out: Subscriber growth was offset by worse-than-expected ARPU declines, a result of rising popularity of the family plan offering. While it hurts the amount of money the company gets from each user, the Family Plan is a catalyst for lower churn and MAU growth. Furthermore, there is an opportunity for Spotify to improve ARPU by raising prices of the family plans.
“We are comfortable with the underlying trends in pricing and believe planned Family Plan price increases could lead to sooner-than-expected stabilization in ARPU,” added Egbert.
This month, Spotify bumped up the price of the Family Plan in seven markets (Australia, Belgium, Switzerland, Bolivia, Peru, Ecuador, and Colombia), according to Guggenheim analyst Michael Morris.
“We expect the early market price increases to support confidence in pricing power in additional geographies. We believe that improving premium ARPU would be a meaningfully positive sentiment driver if it can be achieved,” Morris said in a recent note.
The podcast story: There are now more than 1.9 million podcasts on Spotify, up from about 1.5 million in the previous quarter. Podcasting penetration of MAUs, however, was up only 1% q/q, despite launch of high-profile content from Joe Rogan and Michelle Obama. This is a let-down so far, considering the podcast-fueled hype by investors that previously sent the stock up to nearly $300 a share. Spotify’s major investments in podcasting have been a key driver of the stock price since it announced a $100 million exclusive deal with Joe Rogan in May.
The big picture: Spotify released 58 new Original and Exclusive podcasts across 16 international markets. By expanding its content offering beyond music, the company gives itself more bargaining power with the 3 or 4 music labels that control about 90% of the music played on Spotify, according to Jeff Wlodarczak, analyst at Pivotal Research.
“Post Spotify’s successful push into exclusive podcast talent, their renewal of key deals, continued solid subscriber growth it is becoming clear that their sheer global size, relative strength of the Spotify offerings to its peers, successful original podcast moves that Spotify has enough leverage to capture a larger % of the economics that we had originally forecast.”
