Spotify Posts 10% Q4 Revenue Jump, but Shares Fall on Cautious Q1 Guidance

Spotify shares closed 8% lower Wednesday, at $317.25, following conservative Q1 revenue guidance based on pandemic uncertainties and their ongoing effects on user, subscriber and revenue growth. Revenue guidance for Q1 is $2.4 billion-$2.6 billion with 354 million-364 million monthly active users (MAUs), including 155 million-158 million paid, said the company's Q4 shareholder letter Wednesday.

Q4 revenue was $2.6 billion vs. $2.3 billion in the year-ago quarter. MAUs rose 8% to 345 million -- 155 million premium, 199 million ad-supported -- but premium user retention rate slipped year on year; the company expects churn to decline in 2021. Average revenue per user (ARPU) among premium subscribers fell by $5.12.

Moving into 2021, COVID-19 “still has the potential to be a headwind, as it's difficult to fully gauge its impact,” said CEO Daniel Ek on a Wednesday investor call. Though sheltering at home in 2020 led to more listeners turning to Spotify for music and podcasts, “it also created disruption in listening habits, consumption hours and the release of new music and podcasts,” Ek said. Responding to an analyst question on whether conservative guidance is an indication user growth has peaked, Chief Financial Officer Paul Vogel cited promotional activity in Q1 2020 that didn’t repeat in Q1 this year. He also noted a pull-forward of listeners in a strong Q4.

The pandemic “caused us to pull forward subscribers across the back half of 2020,” making it hard to predict 2021 subscriber growth, said Ek. He called trend lines “healthy” and said Spotify will benefit long-term from a “multibillion user” opportunity as audio consumption shifts from radio to streaming, a trend he said was accelerated by COVID-19.

Spotify announced family plan price hikes Monday in 25 additional markets and full portfolio price increases in Sweden, Norway, Finland and Iceland to improve ARPU, Ek said. On additional price increases, Ek said Spotify had expected to “experiment” with more last year but pulled back because of the pandemic; whether that will occur this year is “another unknown” going into 2021.

Executives underscored that there’s no “one-size-fits-all” pricing model for Spotify customers. As the company expands into more local markets and the next growth phase, “you are going to see many more configurations than the ones that are currently there.” Vogel referred to a mix between subscription and ad-based.

Spotify launched in South Korea Tuesday to tap one of “the fastest-growing music markets in the world,” said Ek. Responding to an analyst who noted the market has six established music streaming services, he said its expansion made sense because of the company's relationship with Samsung and the “2,000 other devices” Spotify is on.

The music service had 2.2 million podcasts on the platform in Q4, up from over 1.9 million in Q3. A quarter of total MAUs engaged with podcasts last quarter, up from 22% in Q3, Ek said, and consumption hours doubled from Q4 2019. The company believes growth in podcast consumption is driving higher long-term value and retention, but music is still the dominant listening mode. Ek wouldn’t break out hours for podcasts vs. music.