Spotify's Q1 2019 — 100 Million Subscribers & $159 Million in Net Loss

Spotify has reached 100 million subscribers.  But, its losses continuing spiraling out control.

Earlier this morning, Swedish streaming music giant Spotify published its financial report for the first fiscal quarter 2019 (Q1 2019).

First, the good news.

The service has become the first music platform to reach 100 million subscribers.  This figure grew 32% year-over-year.  In the last quarter, the streaming music giant reported 96 million subscribers.

In addition, the service now has 217 million total monthly active users (MAUs), up 5% over the previous quarter.  Last year, the company had 173 million MAUs.  The company reported 123 million users on its ad-supported service.  In its total MAUs for the first quarter 2019, Spotify likely dismissed accounts deemed fraudulent.

Breaking down the company’s financials, Premium revenue reached €1.4 billion ($1.5 billion), up 34% year-over-year and 5% over Q4 2018.

Now, the bad news.

Ad-supported revenue took a major hit, growing 24% year-over-year to €126 million ($140.6 million) and plummeting 28% over the last quarter.

The company’s total revenue also rose just 1% over the previous quarter to €1.5 billion ($1.7 billion).  In addition, Spotify’s gross prit totaled €373 million ($416 million), up 32% year-over-year, but down 7% over Q4 2018.  The company’s gross margin also fell to 24.7%, down 0.2% year-over-year and down 2% over Q4 2018.

Average revenue per user (ARPU) remained stagnant over Q1 2018, totaling €4.71 ($5.26) per user.  The company expects ARPU declines to remain in the low single digits this year.

Despite €94 million ($107 million at the historic exchange rate) in operating income last quarter, Spotify posted a sharp drop €47 million ($52.5 million) in operating loss.  This figure represents a 16% decline year-over-year and a substantial 150% drop over Q4 2018.

Spotify also posted a negative earnings per share (EPS) €0.79 (-$0.88).  The company’s net loss for Q1 2019 totaled €142 million ($158.6 million).  Spotify’s net income last quarter totaled €442 million ($507.5 million at the historic exchange rate).

Despite the negative news, the company’s net cash flows from operating activities increased 149% year-over-year to €209 million ($233 million).  Spotify’s free cash flow also grew 134% to €173 million ($193 million).

The company attributed its subscriber growth to better-than-planned promotions in the U.S. and Canada.  In addition, family plans continue to grow at a steady rate.  Spotify also saw strong growth from the expansion its Google Home Mini deal as well as its Hulu bundle in the U.S.

Breaking down its total subscribers by region, Europe makes up 40% all Spotify subscriptions.  North America has a 30% share, followed by 20% in Latin America and 10% in “the rest the world.”

Spotify also reported it had a “small incremental benefit” from podcasts following its acquisitions Gimlet Media and Anchor.  The company expects podcast revenue to accelerate this year.  It had spent €308 million ($343.9 million) to acquire both podcasting companies.  Spotify also spent approximately €50 million ($55.8 million) to acquire a third podcaster – Parcast.

Speaking about its long-term podcast revenue plan, the company explained,

Over time, our ambition is to develop a more robust advertising solution for podcasts that will allow us to layer in the kind targeting, measurement, and reporting capabilities we have for the core Ad-Supported business.

Admitting the company’s ad-supported revenue growth underperformed its own expectations, Spotify wrote it has since “course corrected” and expects strong ad revenue in Q2 2019.

In addition, the value the company’s investment in Tencent Music Entertainment has increased €652 million ($728 million) to €2.3 billion ($2.6 billion).

In its expectations for Q2 2019 and FY 2019, Spotify admitted to “substantial uncertainty.”

For its Q2 2019 guidance, the company expects between 222 million and 228 million total MAUs.  Premium subscribers will total between 107 million and 110 million.  The streaming music giant expects to bring in between €1.51 billion ($1.7 billion) and €1.71 billion ($1.9 billion) in total revenue.  Gross margin will total 23.5%—25.5%.  Operating losses will likely total between €15 million ($16.8 million) and €95 million ($106.1 million).

For its FY 2019 guidance, total MAUs will grow to reach between 245 million and 265 million.  Premium subscribers will also increase to between 117 million and 127 million.  Total revenue will reach between €6.35 billion ($7.1 billion) and €6.85 billion ($7.6 billion).  Gross margin will total 22%—25%.  Not expecting a prit this year, operating losses will total between €180 million ($200.1 million) and €340 million ($379.7 million).


Featured image by Spotify.