Spotify Technology (SPOT) reported better-than-expected second-quarter earnings on Tuesday, with the company reporting record quarterly profits, gross margins, and free cash flow, citing its recent “efficiency” strategy.
Revenue was in line with expectations, but monthly active users fell short of expectations. Investors were unfazed by either concern, sending the stock soaring more than 10% in premarket trading.
Spotify announced in June that it would increase the price of its premium subscription plans in the US, with the increases set to take effect this month. Spotify also increased its prices last summer.
In addition to adjusting prices, the company has made multiple job cuts and is working on initiatives to grow revenue and improve margins, including a music-only streaming tier and an audiobook-only plan, and it has also introduced more expensive audio bundles that include music, podcasts and audiobooks.
The audio giant reported an operating profit of 266 million euros ($289 million) compared with a loss of 247 million euros a year earlier, beating a company forecast of 250 million euros thanks to cuts in personnel and related costs and reduced marketing expenses.
The company also forecast strong third-quarter operating profit of 405 million euros ($440 million), well above the Wall Street consensus estimate of 298.1 million euros.
The streaming service reported net profit of 274 million euros ($298 million), or earnings per share of 1.33 euros, well above analysts’ expectations of 1.04 euros per share, compared with a loss of 302 million euros, or a loss per share of 1.55 euros, in the same period last year.
Gross margin came in at a better-than-expected record of 29.2%, beating the company’s forecast of 28.1%. The company said it now expects its third-quarter margin to rise to a much stronger than expected 30.2%, driven mainly by year-over-year improvement in music and podcasts.
Spotify has previously said it expects that metric to be between 30% and 35% in the long term as it plans to further expand its podcast and advertising businesses.
Meanwhile, revenue came in line with expectations at 3.81 billion euros ($4.14 billion), up 20% compared with the second quarter of 2023. The company now expects third-quarter revenue to reach 4 billion euros, compared with 3.4 billion euros in the same period last year.
Wall Street analysts credited Spotify’s better-than-expected gross profit and better-than-expected third-quarter operating profit and gross margin guidance as key factors driving the stock’s rise.
Number of users
Its monthly active users (MAUs) for the quarter came in at 626 million, below the company’s forecast of 631 million, but still up 14% from the same period last year. The streaming service now expects third-quarter MAUs to reach 639 million.
The story continues
Premium subscribers reached 246 million, beating the company’s forecast of 245 million, a 12% increase from last year. Spotify expects membership to grow to 251 million in the third quarter.
Free cash flow, another key metric for investors, reached a record high of €490 million in the quarter, compared with €9 million in the same period last year.
Average revenue per user (ARPU) for premium subscriptions increased 8% year-over-year to 4.62 euros (10% year-over-year at constant currency), benefiting from price increases, partially offset by discount plans and price reductions in emerging markets, the company said.
The shadow of Spotify’s artificial intelligence DJ announcer, Xavier Jernigan, is photographed while attending the launch of Spotify’s latest tools in Mexico City on July 17, 2024. (Photo: Rodrigo Oropeza/AFP) (Photo: Rodrigo Oropeza/AFP via Getty Images) (Rodrigo Oropeza via Getty Images)
Pledge of Benefits
Spotify has spent $1 billion over the past four years trying to enter the podcast market through splashy deals with top artists and more than $400 million in studio acquisitions.
This expenditure significantly compressed gross margins and placed a significant burden on profitability.
After its shares plummeted, the audio giant pledged to improve profitability on a gross and operating profit basis from 2023.
The company also announced plans to be more cautious about its future investments earlier this year, and has since adjusted its podcast strategy to focus more on distribution than exclusivity.
Spotify also changed its royalty structure, made audiobooks free for paying subscribers and inked new deals with popular podcasters such as “Call Her Daddy’s” Joe Rogan and Alexandra Cooper.
As a result, the stock price has soared, up more than 50% since the beginning of the year and about 70% on an annualized basis.
A screen displaying the Spotify logo and trading information on the floor of the New York Stock Exchange (NYSE) on February 6, 2024. (REUTERS/Brendan McDiarmid) (REUTERS/Reuters)
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her at Yahoo Finance. translatorvisit me on LinkedIn or email me at alexandra.canal@yahoofinance.com.
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