Spotify's Q1 MAUs, Subs Grew, but Ad Revenue Fell 28% vs. Q4

Monthly Spotify premium users grew 15% year on year in Q1 to 182 million, despite 1.5 million accounts suspended in Russia, said the company Wednesday in its quarterly earnings release. Net subscriber growth was ahead of plan, helped by adds in Latin America and Europe.

Total monthly active users grew 19% year on year to 422 million, exceeding guidance by 4 million, but a brief service outage in March caused users to be “involuntarily logged out” of the streaming audio service, requiring new accounts to log back in, said Chief Financial Officer Paul Vogel. “This had the effect of double-counting these users” in March, which it then reversed in April, he said. Normalized MAU was about 419 million in the quarter, about 1 million ahead of plan, he said. Spotify had strong results in Latin America, Indonesia, Brazil and Mexico. By region, Spotify reported 33% MAUs in Europe, 23% in North America, 22% in Latin America and 23% in rest of world.

Average revenue per user (ARPU) grew 6% year on year. The company was trending close to mid-30% ad revenue growth before Russia’s invasion of Ukraine, which brought ad growth down to 30%, Vogel said. Ad-supported revenue grew 31% year on year to $416 million but was off 28% from Q4 2021. Shares hit a 52-week low Wednesday at $95.74 before closing 12.4% lower at $96.67.

For Q2, Spotify expects the “remaining wind-down” of Russia business to reduce MAUs by an additional 5 million, and subscribers by another 600,000, Vogel said. Q2 guidance calls for 14 million net new MAUs for a total 428 million, Vogel said. The company projects 6 million net new subscribers for a total 187 million premium subscribers. Q2 projected revenue is $2.9 billion.

On Spotify’s elasticity in a weakening macroeconomic environment, Vogel said churn rates weren’t “out of the ordinary” in Q1. The company believes Spotify is a service consumers will continue to want to have. “Any kind of uncertainty, whether it’s war or macro, it’s always going to be there,” but the company doesn’t see a significant impact of either on the business. Ek said Spotify continues to invest in strengthening the “value per hour” for subscribers, including adding podcasts, news and educational content.

Responding to an analyst’s question on whether Spotify is experiencing market saturation and competitive trends similar to what Netflix reported (see 2204190066) last week, CEO Daniel Ek said, “I think a lot of people are grouping us together,” but “besides both being media companies and being primarily subscription revenue companies, that’s kind of where the similarities end.” Spotify is a platform, and Netflix is not, he said, and Spotify has a free service, Netflix does not. Spotify has “hundreds of millions of pieces of content; Netflix makes its own original content solely and licenses a little bit,” he said: The two are “vastly different businesses.” Audio, Ek said, “is an overlooked market that’s growing, and it’s going to be really big.”

Asked about the long-term value of Spotify's podcast business, Ek cited an “enormous amount of appetite among existing and new Spotify users” to consume podcast content. Creators want to engage with their audience, create content and upload Spotify tools to monetize and grow their audience, he said. "When we added podcasts, we became a much stronger proposition for advertisers,” Ek said, by increasing order size in music and podcasting. On the business side, podcasting has the potential to be a higher margin business than music, he said.

Spotify announced a marketing sponsorship with FC Barcelona last month, which Ek called a “massive opportunity” to be “front and center” with soccer fans all over the world. Vogel noted Barcelona attracts over 700 million unique viewers per year, with multiple games per year drawing an audience that’s four times the size that of the Super Bowl. “The reach is great there,” said Vogel: “Two-thirds of their audience is in emerging or developing markets where we’re growing and expect to grow the fastest.”

Ek was enthusiastic about Google’s pilot program with Spotify and other app developers that gives consumers “billing choice” to pay via Google or directly to Spotify. “This is something that we’ve been talking about for years,” he said, calling it an important step in the right direction for the app ecosystem. “It’s about a level playing field,” he said: “We want to be able to communicate with our consumers the way they want us to communicate" and to "monetize the relationship in a way that it makes sense for the consumer and for us,” he said.