Last week, Spotify reported strong subscriber and revenue growth for the second quarter of 2022. The streaming audio company reported total revenue of $2.9 billion, representing a 23% increase year-over-year, slightly exceeding the company’s guidance. Premium subscription revenue was $2.53 billion, a 22% increase year-over-year, and ad revenue was $365 million, a 31% increase year-over-year.
“Nearly all of our key metrics surpassed guidance in Q2’22, led by MAU and Subscriber outperformance, healthy revenue growth and a modestly better operating loss,” said Spotify in their shareholder deck. “While we continue to monitor the uncertain macro environment, we are very pleased with the resilience of the business, particularly our strength in MAUs and subscribers.”
User growth was also up for the second quarter:
- Spotify reported 433 million monthly active users, a 19% increase year-over-year and 5 million MAUs above guidance. This represents 19 million net additions, the company’s largest growth ever during the second quarter.
- Spotify attributes the growth in MAUs to successful marketing campaigns in India, Indonesia and the Philippines; higher reactivations in Europe, and Gen Z strength in Latin America.
- Spotify had 188 million premium subscribers, a 14% increase year-over-year, driven by promotions and household plans. This was 1 million over guidance.
- Premium subscribers generated average revenue per user (ARPU) of $4.60.
Additional financial highlights
Other highlights for the quarter include the following:
- Operating expenses were 38% year-over-year due to growth initiatives and acquisitions of Podsights, Chartable and Whooshkaa.
- Gross margin was 24.6%, compared to guidance of 25.2%. Spotify said gross margin was down because of the company’s decision to discontinue the manufacture of Car Thing.
- Adjusted gross margin was 25.3%, compared to guidance of 25.2%.
- The company’s operating loss was $197 million, compared to guidance of $200 million. Spotify attributed the operating loss to higher personnel costs, higher advertising expenses, and the negative impact of foreign currency exchange rates.
“As stated at our 2022 Investor Day, much of the expense growth we are seeing in Q2 is the result of decisions we made toward the end of 2021 to invest in expanding our global sales team to drive new international ads monetization potential, increased marketing for user growth in many of our newer markets and platform innovation. In June, we announced plans to slow headcount growth by 25% beginning in Q3, while also taking a closer look at marketing activity,” Spotify said.
During the second quarter, Spotify had a number of operational highlights.
- At the end of the quarter, Spotify had 4.4 million podcasts on the platform.
- They released 100 new Original and Exclusive podcasts. Batman Unburied was #1 in several key markets.
- Video podcasts are available to creators via Anchor in 11 markets.
- The company closed on their acquisition of Findaway, an audiobook platform and ecosystem.
- They announced their acquisition of Sonantic, which closed on July 11.
Third quarter outlook
Spotify provided the following outlook for the third quarter:
- Total MAUs of 450 million with 17 million net new MAUs
- Total premium subscribers: 194 million with 6 million net new subscribers
- Total revenue of $3.04 billion
- Gross margin of 25.2%
- Operating loss of $(221) million
Spotify continues to report quarterly losses, but the company remains in growth mode. They are focused on making strategic acquisitions, developing monetization opportunities to attract creators, and improving the user experience to attract and retain listeners and premium subscribers. Though the company suffered another loss, they beat guidance in revenue and subscriber categories which investors seemed to appreciate. Stock dipped a little the day the earnings report came out, but it quickly rebounded and increased. It looks like Spotify is anticipating similar results in the third quarter with a slightly higher operating loss.