Spotify Technology (SPOT) saw its gross profit exceed €1 billion for the first time, despite a decline in marketing investment that impacted user growth rates. As the Swedish-based streaming giant continues to navigate its expansive audio empire, encompassing music, podcasts, and audiobooks, this quarter's financials offer a mixed picture of profitability paired with slowed growth in monthly active users (MAUs).
Spotify's recent financial results highlighted a strategic reduction in marketing expenditures, part of a broader "efficiency" strategy implemented over the past year, which includes layoffs and adjustments to its service offerings. CEO Daniel Ek acknowledged the impact of these cuts on growth, stating, "We are going to add back some marketing spend over the year because we want to keep on having the growth and we saw that in some territories, we may have pulled back a little bit too much."
The company reported a significant increase in gross margins to 27.6% for the quarter, up from 25.2% the previous year, buoyed by profitability in its burgeoning podcast sector. Spotify's aggressive investment in podcasts, which included hefty expenditures for popular shows like "The Joe Rogan Experience," appears to be paying off as the segment transitions from a financial burden to a profit center.
Total revenue for the quarter rose by 20% to €3.64 billion, slightly above the estimates of €3.61 billion, with the company experimenting with different subscription models to boost revenue. Spotify's premium subscribers increased by 14% in the first quarter to 239 million, aligning with market expectations.
However, the user growth narrative was less optimistic. MAUs grew by 19% to 615 million, falling short of Spotify's guidance and analyst estimates of 618 million. The company has set a conservative target of 631 million MAUs for the upcoming quarter, also below analyst projections.
Amid these dynamics, Spotify also announced plans to introduce a music-only subscription tier, tailored for users primarily interested in music content, excluding podcasts and audiobooks. This move reflects Spotify's ongoing efforts to segment its offerings and cater more precisely to its diverse user base.
Financially, Spotify turned a notable profit with net income reaching €197 million, or €0.97 per share, surpassing analyst expectations. This profitability marks a significant turnaround from a loss in the same quarter the previous year and reflects the benefits of recent price increases and cost-cutting measures.
The company's operating income for the quarter was reported at €168 million, with projections for a strong performance in the upcoming quarter. Despite these positive financials, Spotify continues to navigate challenges related to competition in the fast fashion sector, notably from rivals such as H&M and Zara.
Spotify's stock responded positively to the earnings report, with shares rising over 9% in premarket trading. This investor confidence is buoyed by the company's ongoing adjustments to its business model, including price hikes and more deliberate capital deployment strategies.
