Spotify Q2 Ad Revenue Better in June After 25% Decline in April-May
Spotify monthly active users grew 29% year on year to 299 million, at the top end of MAU guidance, said management in a Wednesday shareholder letter. Ad revenue fell to $154 million from $194 million. Revenue rose to $2.22 billion vs. $2.17 billion. Quarter to date through May, ad sales fell 25% vs. 2019, said CEO Daniel Ek on a Wednesday earnings call. “Big declines” were due to the COVID-19 pandemic but improved to 12% lower in June.
Direct and programmatic channels declined double digits, while the self-service Ad Studio and Podcast channels had double-digit growth. Spotify rolled out video as a new product offering in Ad Studio and expanded it to 22 markets last month. Shares closed 1.8% lower Wednesday at $262.21
The company will make its streaming ad insertion technology more widely available to U.S. advertisers this summer. It introduced In-App Offers, which resurfaces offers to podcast listeners with a visual reminder to redeem offers in-app. Podcast ad momentum continued into July, it said, helped by a $20 million partnership with Omnicom. Spotify’s podcast catalog has over 1.5 million shows, half launching this year, it said.
COVID-19-related softness in April and May, including payment failures by Premium users in Latin America and emerging regions, were offset by strength in North America and other areas in the quarter, Spotify said.
Struggling regions rebounded in June with increased reactivations and slower churn. Overall listening hours in June returned to pre-COVID levels, Spotify said. Consumption trends by platform “are beginning to normalize,” with in-car listening at the end of Q2 less than 10% below pre-COVID-19 levels; they sank as far as 50% year on year in April.
Churn ticked up 8 basis points vs. Q1 and improved about 46 basis points year on year, management said, crediting adoption of Family and Student plans and “maturity” of the subscriber base.
To improve intake, retention and conversion, the company said it improved the onboarding experience and features; it removed the cap on the number of tracks a user can download. Addressing COVID-19 protective measures, it launched a Listening Together “microsite” that “visualizes" when two Spotify listeners start to play the same song at the exact same time, which it said happens about 30,000 times a second.
A new Group Session feature lets Premium users share control over music being played and contribute to a collaborative group playlist. The new Canvas feature offers eight-second video loops; users and artists can share Canvas artwork to Instagram stories.
Spotify expects to hit full-year revenue targets of about $8.99 billion-$9.46 billion, with 328 million-348 million MAUs and 143 million-153 Premium subscribers. The company lowered 2020 guidance in April, citing currency fluctuations and lower ad revenue.
Spotify stock has jumped about 70% since the company signed comedian Joe Rogan to an exclusive podcast deal in mid-May, noted Pivotal Research Group analyst Jeffrey Wlodarczak in a Wednesday investor note. The analyst attributed the spike to “hope that Spotify can eventually become” like Netflix with “exclusive podcast content helping to drive higher subscriber growth, lower subscriber churn, increased engagement, greater ability to move consumers from the free funnel to premium and eventually reverse negative ARPU [average revenue per user] trends.”