Spotify is profitable as earnings and revenue beat estimates

Spotify Technology (SPOT) reported fiscal first-quarter earnings on Tuesday that beat expectations on both the top and bottom lines. The audio giant also turned profitable as it continues to implement its latest “efficiency” strategy.

Over the past year, Spotify has committed to multiple rounds of layoffs as well as price increases and other initiatives to boost revenue growth and improve margins. The company said it will be more deliberate about future investments after spending billions on its entry into the crowded podcast market.

The audio giant announced operating income of 168 million euros ($179 million), compared to a loss of 156 million euros in the same period of the previous year. This was below the company's guidance of €180 million as social charges came in higher than expected, “driven by a higher share price during the quarter,” according to Spotify.

This also resulted in strong second-quarter operating income of €250 million, far exceeding Wall Street expectations. Revenue guidance for the second quarter also came in above estimates – €3.8 billion versus €3.76 billion expected.

On top of more deliberate spending, Spotify will reportedly raise prices again after raising the cost of some subscription plans last summer.

according to Bloomberg, Spotify plans to raise prices by about $1 to $2 per month in five markets, including the United Kingdom, Australia, and Pakistan. The changes are expected to come at the end of April, with US prices expected to rise “later this year.” The report also said that Spotify plans to offer a cheaper option that does not include audiobooks.

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The stock rose as much as 15% in early trading Tuesday after the results.

The streaming service reported net income of €197 million ($210 million), or earnings of €0.97 per share. This came ahead of analysts' expectations of earnings of 0.65 euros per share. It also compares to the prior period's loss of €225 million, or a loss of €1.16 per share.

Gross margins came in at a stronger-than-expected 27.6%, exceeding the company's guidance of 26.4%. The streaming company said it expects margins to reach 28.1% in the second quarter, driven primarily by year-over-year improvements in music and audio streaming.

Spotify previously said it expects the scale to be between 30% and 35% in the long term amid plans to expand its streaming and advertising businesses.

Meanwhile, revenue totaled 3.64 billion euros ($3.88 billion) — 20% higher than in the first quarter of 2023 and higher than Wall Street's forecast of 3.61 billion euros.

User numbers

Total monthly active users (MAUs) fell below the company's estimate of 618 million to 615 million in the quarter — but still represented a 19% improvement over the total in the same period last year. The streaming service expects the number of MAUs in the second quarter to reach 631 million.

Premium subscribers met Wall Street expectations of 239 million – an increase of 14% year over year. Spotify expects subscribers to rise to 245 million in the second quarter.

Free cash flow, another key metric for investors, was €207 million in the quarter compared to €57 million in the same period last year.

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Average revenue per user, or ARPU, for premium subscriptions increased 7% to €4.55 (or 5% year over year, excluding foreign exchange headwinds). The ARPU was driven by benefits from price increases that were partially offset by discounted plans and lower prices in emerging markets, the company said.

Profit pledge

Overall, analysts were bullish on Spotify after the audio giant pledged to improve its profitability starting in 2023 based on profit margin and operating income.

Spotify stock has risen more than 100% over the past year and is up 43% year to date.

Spotify has spent $1 billion in the podcast market over the past four years with A-list deals are exhilarating and $400 million studio acquisitions.

This spending has significantly reduced gross margins and significantly impacted profitability. In response, Spotify has committed to several rounds of layoffs – Three in 2023 alone.

Spotify CFO Paul Vogel stepped down on March 31. And it will be so replacing By Christian Luiga, He previously worked for the Swedish aerospace and defense company Saab. The company said Luiga will take over in the third quarter.

FILE - Wall Street analysts were bullish on Spotify after the audio giant pledged to improve its profitability starting in 2023 based on profit margin and operating income.  (AP Photo/Patrick Szymanski, File)

Wall Street analysts were bullish on Spotify after the audio giant pledged to improve its profitability. (AP Photo/Patrick Szymanski, File) (News agency)

In addition to layoffs and price increases, Spotify has also changed its equity structure Audiobooks are free for paying subscribersand closed in new He deals with popular podcasters like Joe Rogan and Alexandra Cooper from “Call Her Daddy.”

The new deals come as Spotify revamps its podcast strategy to focus more on distribution rather than exclusivity.

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The audio giant announced that Rogan's podcast, the most popular on the platform, will be available on additional services like Apple Podcasts (AAPL), Amazon Music (AMZN), and YouTube (GOOGL) for the first time in years. Spotify will handle distribution and ad sales as it works to maximize revenue. Rogan will receive a guaranteed minimum price and a cut in advertising revenue.

Cooper's “Call Her Daddy” deal will have a similar structure with the podcast now available on all major audio platforms after more than two years as a Spotify exclusive. The company will retain exclusive rights to the video portion of the podcast.

Alexandra Canal He is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, linkedin, And email it to [email protected].

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