On July 31, streaming music provider Spotify reported it had reached 108 million premium subscribers at the end of the second quarter. This represents an increase of 8 million paying subscribers over the prior quarter and a 31% increase year-over-year. The total fell well within Spotifys guidance of 107 million to 110 million. Monthly churn decreased to a record low 4.6%, but student subscriptions were lower than targeted. Spotify said it missed the target due to poor execution, not due to a soft market.

Overall, the business performed well in the second quarter. A key metric that illustrates the health of our business is user engagement and this quarter, our users listened to more than 17 billion hours of content on the platform, up 35% year-over-year, said Daniel Ek, co-founder, CEO and chairman, on the July 31 earnings call.

And as you saw in our shareholder letter, all of our key metrics finished within or at the high end of our forecast except for quarter-ending subs. Our goal is to land at roughly the 78th percentile of our guidance, and we missed on subs. That’s on us. The good news is the shortfall was execution-related rather than softness in the business, and we expect to make up the lost ground before year-end, Ek added.

Financial highlights from the second quarter include the following:

• Total revenue for the quarter was 1,667 million, or approximately $1.87 million in U.S. dollars, a 31% increase year-over-year.
• Premium revenue was 1,502 million, or approximately $1.67 million in U.S. dollars, also representing growth of 31% year-over-year.
• Ad-supported revenue was 165 million, or approximately $185.25 million in U.S. dollars, or growth of 34% year-over-year.
• Overall, Spotifys ad business is doing well, with audio ads up 38%, programmatic and ad studio revenue up 71% year-over-year, and the company is seeing a growing demand for podcast advertising.
• Average revenue per user (ARPU) was 4.86, or $5.46 in U.S. dollars, virtually flat year-over-year.
• Gross margin was 26%, and premium gross margin was 27.2%.
• Operating expenses were 437 million, or $490.7 million, a 4% increase year-over-year.
• Operating losses were 3 million, or $3.37 million in U.S. dollars, a significant improvement.
• The company ended the quarter with 1.6 billion, or $1.80 billion in U.S. dollars, in cash, cash equivalents, restricted cash and short-term investments.

Operational highlights for the quarter include:

• Spotify users listened to more than 17 billion hours of content, a 35% increase year-over-year.
• Tens of millions of users are streaming podcasts monthly.
• Total monthly active users (MAUs) were 232 million, a 29% increase year-over-year
• Ad-supported MAUs were 129 million, a 27% increase year-over-year
• Spotify launched on PlayStation consoles in the Middle East and in Latin America
• Streaming music markets in Germany, Japan and India all performed well for Spotify during the second quarter.
• Spotify Lite is now available in 36 markets.
• The company started testing Spotify Stations, a genre-based music experience, in the late spring.
• The company renewed two of four major label partners and they are working on the remaining two.

Spotify offered the following guidance for the third quarter:

• Total MAUs between 240 million and 245 million
• Total premium subscribers between 110 million and 114 million
• Total Revenue between 1.57 ($1.76) and 1.77 ($1.99) billion
• Gross Margin between 23.2 and 25.2%
• Operating Profit/Loss: between 2 and (78) million

Whats Ek? Ek said on the earnings call that the company would continue to invest in its product capabilities and its content portfolio. And, of course, theres that pesky antitrust complaint Spotify filed in the European Union against Apple.

Spotify stock was not dramatically affected by the earnings report. On July 31, the day earnings were released, stock was valued at $154.94. It has since dipped to $150.00, as of 4:56 p.m. EDT yesterday.

Insider Take:

Spotify cranked out a pretty solid quarter with increases in revenue, premium listeners, listener hours, ad growth and product experimentation. And, of course, we cant overlook the fact that the companys loss is significantly less. With a solid premium user base and a plan to continually improve the user interface while adding new content, Spotify looks like it will continue into the third and fourth quarters with a solid plan and strong financials.