Spotify Sees Strong Premium Subscriber and Revenue Growth in Q2

But misses quarterly projections due to decreased ad revenue

Impacted by the COVID-19 pandemic, Spotify sees premium subscriber and subscription revenue growth, but the streaming audio platform lost valuable advertising dollars during the second quarter of 2020. As of June 30, Spotify’s total monthly active users (MAUs) grew to 299 million, representing 29% growth year-over-year. Of that total, 138 million are premium subscribers, and 170 million are ad-supported users. Premium subscribers grew 27% year-over-year, and ad-supported users grew 31% year-over-year.

For the second quarter of 2020, Spotify reported total revenue of €1.89 billion, a 13% increase year-over-year. Premium subscription revenue was €1.76 billion, a 17% increase year-over-year, while advertising revenue was €131 million, a 21% decrease year-over-year.

Additional financial highlights

Other financial highlights for the quarter include the following:

Gross profit was €479 million, a 10% increase year-over-year.
Gross margin was 25.4%, compared to 26.0% in Q2 2019 and 25.5% in Q1 2020.
The company reported an operating loss of €167 million, and free cash flow of €27 million.
Average revenue per user was €4.41, a 9% decrease, driven by product mix.
Spotify has more than 60 million unique tracks and 1.5 million podcasts on the streaming audio platform.

Premium subscriber base

The company’s largest subscriber base is in Europe at 39%, followed by North America at 29%.

Spotify Premium Subscribers as of June 30, 2020

In its letter to shareholders, Spotify said that premium subscriber growth of 27% exceeded their expectations due, in part, to the popularity of their Family Plan. Under this plan, six family members living in the same home get access to a premium subscription for $14.99 a month (U.S.). Spotify hopes to have success with its Spotify Duo plan as well, where two household members get a premium subscription for $12.99 a month (U.S.).

Advertising revenue

Though advertising revenue was down, Spotify outperformed its forecast. Revenue was down in April and May, but Spotify saw a rebound in June. While Direct and Programmatic channels revenue dropped, Ad Studio and Podcast channels saw double digit growth during the quarter, offsetting some of the losses. The company said podcast advertising outperformed expectations during the quarter and continuing into the third quarter.

User experience

The company continues to focus on product innovation to provide an optimal experience for premium subscribers and ad-supported users. Some of the changes include rolling out the Duo plan to more markets, improving the onboarding experience to improve short- and long-term retention, removing the cap on user downloads, and launching a Group Session feature.

Operational highlights

In addition, Spotify noted some agreements and licensing deals that will benefit premium subscribers and ad-supported users:

Spotify signed a multi-year global license agreement with Universal Music Group.
The company has a multi-year, exclusive licensing agreement The Joe Rogan Experience which will debut in September.
Spotify previously announced a partnership with Warner Bros. and DC to produce and distribution narrative, scripted podcasts exclusive for Spotify.
Harry Potter at Home, an exclusive reading of the Sorcerer’s Stone on Spotify featuring Daniel Radcliffe and other well-known actors, is the #1 O&E show on the platform.

COVID-19’s impact

Spotify's COVID-19 guide includes podcasts from The New York Times, NPR, BBC, Associated Press, and more.

As COVID-19 impacted creators’ lives, Spotify launched an “At Home Music & Podcast Entertainment” hub which has attracted more than 20 million unique visitors. Spotify also created a COVID-19 podcast hub as a resource to people who want to learn more about the disease and how it is impacting users around the world.

The COVID-19 guide includes podcasts from The New York Times, NPR, BBC, Associated Press, and more. Spotify also launched the COVID-19 Music Relief project to support the global music community. Spotify will match donations, dollar for dollar, up to $10 million, for organizations that are trying to support the music community during this difficult time.

Guidance for Q3

Total MAUs: 312-317 million
Total Premium Subscribers: 140-144 million
Total Revenue: €1.85-2.05 billion
Operating Loss: €70-150 million

Insider Take

Spotify stock took a slight hit after the release of its financials early yesterday morning. Tuesday morning, July 28, Spotify’s stock was valued at $267.12 per share. As of 7:21 p.m. EDT yesterday, it was down to $262.21. Considering the significant impact coronavirus has had on all of our lives, Spotify’s financials are about as good as you could expect – growth in subscriber and subscription premium numbers but losses in terms of advertising revenue. As the company estimates the third quarter, it seems like more of the same. If they can hold steady, they will weather the COVID-19 storm by forging ahead with their product innovations and making improvements to the user experience. We don’t expect to see any big surprises in the third quarter.

Filed in Auto-renew Subscription, Entertainment and Streaming, FInance, Freemium, Product Development, Revenue and Sales, Subscriber Retention

Dana E. Neuts

Dana Neuts is Subscription Insider's Editorial Director, covering our daily subscription news as well as member features, case studies, premium content, and reports. Dana is also a writer, editor, marketer and communications professional. Her work has appeared in AARP Bulletin, The Seattle Times, Seattle Business, 425 Business, 425 Magazine, South Sound Magazine, Northwest Travel and more. Her specialties include business writing, community news, senior issues, travel and, of course, subscriptions!