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Oct 24, 2023 - Economy

Spotify posts third-quarter profit, beats earnings

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Illustration of podcast symbol with headphones on and smiling

Illustration: Sarah Grillo/Axios

Spotify on Tuesday posted $34 million in operating income, marking its first quarterly profit since 2021.

Why it matters: A rare price increase in July helped improve the company's gross margins without impacting user growth.

  • Spotify surpassed its own Wall Street guidance on free, ad-supported user growth and premium subscriber user growth by 2 million in both instances.

By the numbers: User growth increases combined with price hikes and advertising improvements helped the company beat Wall Street expectations on its top line, posting revenues of $3.56 billion for the quarter, according to its most recent earnings report out Tuesday.

  • Pullbacks in podcast spending, in addition to price hikes, also contributed to a higher gross margin of 26.4% for the quarter that ran from July through September.
  • Higher gross margins combined with lower operating expenses, specifically lower personnel costs and marketing investment, helped the company increase its net income to $69 million last quarter, its highest net income since the first quarter of 2022.
  • Spotify announced 6% staff cuts earlier this year, and it's made subsequent cuts to its staff amid consolidation within its podcast unit.

Between the lines: Overall, the company now has 574 million monthly active users, up 26% from the same quarter the prior year.

  • Its premium subscriber base increased 16% year over year to 226 million globally. Its ad-supported user base grew 32% year over year, which helped drive a 16% year-over-year gain in advertising revenue.

The big picture: Like most Big Tech firms, Spotify has pushed to become more efficient this year, but it has continued to invest in key areas to remain competitive.

  • Earlier this year, the company said it would give premium subscribers 15 free hours of audiobook listening per month.
  • It has also introduced several new AI-driven products, including an AI-driven DJ feature for paid subscribers and an AI-driven voice translation for select podcasts.

What to watch: The company projects its monthly user count to surpass 600 million in the final quarter of 2023.

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