Key Takeaways from Spotify Earnings Call

Spotify released its earnings for Q1 2019 on April 29. The company managed to have more than 217 million monthly active users, a growth of 5% year-on-year (YoY) with more than 100 million (4% YoY growth) paid subscribers. Its revenue grew 33% YoY to €1.511 billion (US$ 1.690 billion), but operating expenses were also very high. Here are some of the key points from Spotify’s Q1 2019 earnings call:

  1. Building on partnerships: Spotify is partnering with a lot of industry peers to increase its reach. In March, it leveraged its partnership with Google to expand in the UK and France through Google Home Mini promotion. It also partnered with Samsung wherein the app will be pre-loaded in Samsung devices. Further, US customers who buy the flagship Samsung Galaxy S10 device will get a six months free trial for Spotify premium. Spotify has also partnered Hulu. As part of this partnership, Spotify is offering Hulu’s limited commercial plan to its standard subscribers at no additional cost. With these kinds of partnerships, Spotify wants to offer its services to a whole set of new customers who would find it pre-installed in their devices or get it bundled with some other product/service.
  2. Acquisitions: Spotify has been very aggressive in increasing reach in different markets and to different segments through acquisitions. In February, it acquired Anchor (a podcast creation and distribution company) to leverage this platform and tap the podcast-loving audience. It also acquired Gimlet (independent producer of podcast content), to better understand the original content production and monetization. Through such acquisitions, Spotify saves the effort of working on podcasts from scratch and matching the market pace with music streamers as well as the podcast players.
  3. Diversified plan options: On the premium part, Family and Student plans continue to grow subscribers rapidly. The partnership with Hulu in the US has added to the success of the Student plan. Also because of these plans, Spotify has differentiated itself among the peers. We can expect more such unique plan options in the coming quarters.
  4. Increasing Operating Expense: The company has been very aggressive in entering new markets and making acquisitions. Royalties have been a significant contributor to increasing the company’s expenses. Also, the increase in stock price led to an increase in accrued social costs. This led to an increase in the operating expense and thus operating loss of €47 million (US$ 53 million). Despite the improvement in the operating margin by 50 bps YoY, the continuous loss figures is a point of concern for the company.