Spotify Reports Subscriber and Revenue Growth in Q2, Ahead of Expectations

But fell short in total monthly active users

Streaming audio platform Spotify reported growth in subscribers and revenue, exceeding the company’s expectations for the second quarter of 2021. Spotify reported 165 million premium subscribers, a 20% increase year-over-year, and 210 million ad-supported monthly active users, a 24% increase year-over-year. The company had total revenue of €2.3 billion (approximately $2.73 billion U.S.), a 23% increase year-over-year and at the top end of the company’s guidance. Spotify also reported improved average revenue per user, lower churn and advertising revenue for Q2 2021.

MAU goal fell short

However, the company fell short of its forecast in terms of total monthly active users (MAUs). Total MAUs grew 22% to 365 million year-over-year with the company adding 9 million MAUs during the second quarter. In its July 28, 2021 shareholder letter, Spotify attributed the lower MAU count to COVID-19’s continued impact in a few markets and a sign-up issue through a third-party platform which has now been fixed.

Quarterly highlights

Diving a little deeper, here are financial highlights for Spotify’s second quarter of 2021:

  • Of Spotify’s total revenue of €2.3 billion, €2.1 billion came from premium subscription revenue and the remaining €275 million came from advertising revenue, a 110% increase year-over-year.  
  • Spotify attributes some of the increase in ad revenue to their direct and podcast sales channels.
  • Operating expenses were €651 million, a 1% increase year-over-year and in line with the company’s expectations.
  • Gross margin for the quarter was 28.4%, also at the top end of the company’s guidance.
  • Premium gross margin was 30.8%, and ad-supported gross margin was 11.3%.          
  • The company’s gross profit was €663 million, a 38% increase year-over-year, exceeding the company’s guidance.
  • Also exceeding guidance, operating income was €12 million, compared to a loss of €(167) million in the second quarter of 2020.
  • Net loss for the quarter was €(20) million, or $(0.19) diluted earnings per share.
  • At the end of the quarter, Spotify had 7,085 full-time employees on the payroll.

Operational highlights included the following:

  • In June, Spotify did a soft-launch of Greenroom, a new and improved version of Betty Lab’s Locker Room (similar to Clubhouse).
  • The company announced a Greenroom Creator Fund to attract creators and publishers by helping them monetize their work.
  • The company acquired Podz for improved podcast discovery.
  • Spotify introduced a miniplayer that listeners can use to access Spotify content directly in Facebook without having to leave the Facebook app.
  • Apple Watch users can now download playlists, albums and podcasts directly to their watches.
  • At the end of Q2, Spotify had 2.9 million podcasts on the platform, an increase of 0.3 million from the end of Q1.

“We’ve highlighted several of these innovations in our letter, but we’ve actually introduced more than 20 significant new features over the last few months. It’s been on everything from collaborative listening worldwide to launching our new live audio experience: Spotify Greenroom. We also began rolling out Paid Podcast Subscriptions and Spotify Open Access, both of which offer solutions for creators and publishers to earn revenue from their Spotify listeners. These product innovations unlock an entirely new class of content on Spotify,” said Spotify CEO and chairman Daniel Ek on the company’s earnings call.

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In June, Spotify did a soft-launch of its live audio product, Greenroom, the company’s answer to Clubhouse. Image courtesy of Spotify.

Outlook for Q3 and Q4

Spotify issued the following guidance for the third and fourth quarters of 2021:

Third quarter 2021:

  • Total MAUs between 377 million and 382 million
  • Total Premium Subscribers between 170 million and 174 million
  • Total Revenue between €2.31 billion and €2.51 billion
  • Gross Margin between 24.4% and 26.4%
  • Operating Profit/Loss between €(80) million and €0 million

Fourth quarter 2021:

  • Total MAUs between 400 million and 407 million
  • Total Premium Subscribers between 177 million and 181 million
  • Total Revenue between €2.48 billion and €2.68 billion
  • Gross Margin between 24.1% and 26.1%
  • Operating Profit/Loss between €(152) million and €(72) million

Insider Take

Spotify’s continued innovation in terms of functionality and products and their investment in podcasts seems to be paying off. Though the company is still in the red, they are seeing revenue and subscriber gains. With new functionality, new products like Greenroom, exclusive content like The Ringer and a growing podcast catalog, Spotify will be among the top podcast platforms to beat.