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Spotify turned the largest quarterly profit in its 18-year history as chief executive Daniel Ek makes good on his promise of a “new phase” for the streaming group after decades of freer spending.
Spotify reported net income of €197mn on €3.6bn in revenue in the three months to the end of March. In the same period a year ago, it lost €225mn on €3bn in revenue.
But its austerity, such as pulling back on marketing spending, had an impact on user growth in the quarter. Monthly active users reached 615mn, lower than the 618mn Spotify had forecast, which it blamed on “moderated marketing activity”.
“In hindsight we probably pulled back too significantly,” Ek told investors on a call, adding that he was “already correcting this”.
The company added 3mn paying subscribers to reach a total of 239mn, in line with forecasts.
Spotify and Netflix, the pioneers of streaming for music and television, respectively, have entered a more mature phase for their businesses. In a sign of the times, Netflix last week said it would stop reporting its subscriber numbers — a metric that has been a crucial benchmark for Wall Street in the streaming era — in favour of measuring engagement.
After pressure from investors, including activist ValueAct which complained that Spotify’s expenses had “exploded”, Ek last year said the company he founded in 2006 would enter a new era. Since then, Spotify has been turning the screw on customers with price rises while cutting expenses.
Spotify last year cut more than 2,000 employees, or roughly a quarter of its workforce, and in December Ek said he would hire a new chief financial officer “with a different mix of experiences” for this “new phase”.
The company earlier this month appointed Christian Luiga as its chief financial officer. Luiga, who will be based in Sweden, joins from security and defence company Saab.
Spotify’s gross profit margins in the quarter rose to 27.6 per cent, up from 25.2 per cent a year ago.
Ek on Tuesday admitted that the large job cuts had taken a toll, citing them as one reason for the company’s slower user growth. “Although there’s no question [the choice to cut jobs] was the right strategic decision . . . it did disrupt our operations more than we anticipated,” he said.
“It is really a new Spotify you’re seeing, where we are being relentlessly resourceful in all of our costs.”
Shares in Spotify were up 11.4 per cent on Tuesday. The company’s stock has more than doubled over the past year, reaching a valuation of more than $50bn.
