Spotify Hits 205 Million Paid Subscribers
Topping User Growth Targets for Q4 With Record Total Quarterly Gain
By Todd Spangler, Designed By Jay Wang
Spotify packed on 10 million Premium customers in the last three months of 2022 to stand at 205 million, topping its previous guidance. The growth of its paid subs, up 14% year over year, was “aided by promotional intake and household plans,” the company said.
Overall, the streamer gained 33 million total monthly active users in the fourth quarter — a record high — to reach 489 million (free and paid), up 20% year over year. Amid signs of a flagging economy, Spotify posted €3.17 billion in revenue, up 18% from the year-earlier period an in-line with guidance, and a net loss of €270 million (versus a net loss of €39 million in Q4 2021). Operating loss of €231 million for Q4 was better than its projection of -€300 million.
Shares of Spotify popped as much as 12% in trading Tuesday on the results. The streaming-audio company had projected ending Q4 with 202 million paid subs and total monthly active users of 479 million, handily beating on both fronts.
“We ended 2022 with strong Q4 performance as nearly all of our [key performance indicators] surpassed guidance,” Spotify said in its quarterly shareholder deck. The company said revenue growth, excluding the impact of changes in foreign currency exchange rates, was ahead of expectations.
Meanwhile, Spotify’s ad-supported revenue in Q4 grew 14% year over year, to €449 million, led by podcasting gains in the mid-30% range. The company’s gross margin for the quarter was 25.3%, slightly above guidance “primarily as a result of lower-than-expected spend on new podcast content investments” as well as “broad-based music favorability.
Ahead of the Q4 report, Spotify last week cut 6% of its headcount, laying off about 600 employees. The company also announced the exit of Dawn Ostroff, chief content and advertising business officer — who led Spotify’s push into podcasting over the past four years. In addition, senior execs Gustav Söderström and Alex Norström were promoted the position of co-president, reporting to CEO Daniel Ek.
On the earnings call Tuesday, Ek admitted that he had “overinvested” in Spotify’s business, requiring the company to cut jobs. “I still believe it was the right call to invest, and I would do it again,” the CEO said. “But things change, and the macro-environment has changed significantly in the last year. And in hindsight, I probably got a little carried away and overinvested relative to the uncertainty we saw shaping up in the market.”
The executive reorg was designed to speed up decision-making and to let management look at Spotify’s operations “holistically,” according to Ek. “The management changes” — including Ostroff’s departure — “really had nothing to do with the strategy around podcasting.”
Spotify’s operating expenses jumped 44% in the fourth quarter, to €1.03 billion, which it said were “driven primarily by higher personnel costs related to headcount growth” across its global ad sales team and higher advertising expenses.
Spotify said its projections for the first quarter of 2023 are “subject to substantial uncertainty.” The company expects revenue of €3.1 billion and an operating loss of €194 million (including a €35 million-€45 million charge for severance-related expenses in Q1).
Spotify forecast hitting 500 million monthly active users in Q1, which would represent a net gain of 11 million, and 207 million Premium subscribers, implying 2 million net new subscribers in the quarter. The company said the 2022 Spotify Wrapped campaign drew significantly higher engagement than the year prior: More than 150 million users across 111 markets engaged with the eighth annual campaign in Q4, up more than 30% year over year. On the third-quarter earnings call in October, Ek said Spotify is looking at raising prices on its U.S. subscription plans, following increases by Apple Music and YouTube Premium.
Spotify’s individual tier costs $9.99/month in the U.S. — a price point that hasn’t changed since it launched the service in 2011. Ek on Tuesday noted that Spotify in 2022 raised prices in more than 40 markets but he added that he didn’t have any price increases to announce right now.
