Spotify CEO eyes growth amid economic uncertainty

• "Spotify, in itself, is highly resilient, because we're not dependent on advertising like many of these other business are," Ek said.
• "It is an important future revenue stream for the company, but for now it's a relatively small part of the overall revenue mix ... We look at it more as a future opportunity than a short term threat."

Yes, but: Ek still sees advertising as an important long-term growth engine, which is why the company's investments in new automated ad technology are critical.

• "The reality is, if you look back, we have been investing quite a lot in our ad stack because the world has moved on from the traditional ad stack to much more of a programmatic ad stack, and we were behind on that," Ek said. "We are closing the gap."
• Last month, Spotify announced a new programmatic ad product, called the Spotify Ad Exchange. It also debuted new ad solutions that allow marketers to create scripts and voiceovers for audio ads using generative AI.

State of play: Overall, investors are much more bullish on Spotify than other consumer tech companies, but they're still easily spooked by weak forecasts.

• Spotify shares were down about 4% midday, despite reporting strong first quarter user and revenue growth.
• The company projected weaker-than-expected growth for the second quarter, due to economic uncertainty.

By the numbers: Spotify last quarter added more net new premium subscribers than any other first quarter since 2020, a testament to the value of its products, Ek said.

• With 268 million Premium paid subscribers, the company is one of the largest subscription apps globally, second only to Netflix.
• Ad-supported monthly active users (MAUs) grew at a slower pace by comparison last quarter, but Ek said that's likely due in part to seasonality. "'We tend to do much better on adding MAUs in the back half of the year than we do in the sort of early half of the year," he said.
• Overall, the company now has a total of 678 million monthly active users globally.

Zoom out: Broadly speaking, Spotify's business is much healthier today than it's ever been.

• Spotify posted its first full-year of profit ever in February and last quarter's earnings results suggest it will continue on that path.
• The company's operating income finished at a record high of €509 million — a 12.1% margin. Its gross margin finished at a Q1 high of 31.6%.
• Lower marketing costs contributed to Spotify's profit improvements. Organic marketing and investments in AI have helped make Spotify's marketing efforts more efficient, Ek said.

The big picture: Third-party estimates suggest Spotify has one of the lowest churn rates among all consumer subscription tech companies, which means fewer people cancel or opt out of their subscriptions.

• Even with price hikes last year, Spotify's net new user growth has improved.
• Ek credited a high value to price ratio for the company's current offering, and said there's room to charge even more.
• "We believe over time, we'll have ability to raise prices and monetization," he said.
• A report out Monday suggests the company is eyeing potential price hikes in Europe and Latin America.

What to watch: For years, investors punished Spotify for expensive podcast investments that are now paying off.

• Podcasts were credited for driving the company's ad-supported growth last quarter.
• Spotify now has roughly 7 million podcasts on its platform, up from 700,000 in 2019.
• It has 330,000 video podcast shows on its platform and 270 million users have streamed a video podcast on the platform, the company said.