Spotify CEO Daniel Ek Says “Very Dire Macro Environment” Isn’t Stopping Company’s Momentum; Strong Subscriber Outlook Boosts Battered Stock

Dade Hayes

Spotify CEO Daniel Ek says the “dire macro environment” of inflation and other headwinds has not slowed the company’s momentum.

He delivered the comments on the company’s second-quarter earnings call. The company reported total revenue of $2.9 billion, up 23% and just ahead of Wall Street analysts’ consensus expectation. Net losses widened to $126.8 million, or 86 cents a share, which missed the Street’s consensus, though any concerns about profitability were more than offset by strong subscriber trends.

More from Deadline

The company said it had 433 million monthly active users by the end of the quarter, which was 5 million more than its projections and up 19% from a year ago. Its roster of premium subscribers hit 188 million, up 14% and 1 million more than the company’s guidance.

A continuing strategic push into podcasting, via acquisitions of suppliers like Gimlet and The Ringer as well as deals with Joe Rogan and other popular names in the sector, resulted in record levels of podcast listening in the quarter, the company said. The number of podcasts available to Spotify users and subscribers has now reached 4.4 million.

Ek said the audio category is “differentiated from all the other media that’s out there” in terms of its capabilities for connecting with customers and delivering value for advertisers. Not only are cars a “massive use case, in particular in North America,” but people outside of cars are increasingly listening to earbuds and headphones and Ek says that presents “a huge opportunity in local advertising. Audio is the great beneficiary of that. … Despite the very dire macro environment, advertisers are really taking to well.”

Spotify said it expects to add 6 million premium subscribers and 17 million users during the third quarter. On the bottom line, it expects gross margins of 25.2%, while continued unfavorable foreign exchange rates will cause operating losses to widen further to $221.4 million in the quarter.

The uptick in users and the strong third-quarter guidance boosted shares in Spotify by 7% in pre-market trading. Like many tech stocks, Spotify’s has taken a beating in 2022, losing more than half its value in the year to date.

In the premium business, average revenue per user rose 6% to $4.59, marking the fourth consecutive quarter of improvement in that metric. For years, the company had been under financial pressure as it offered discounts as a lure to new subscribers. More recently, it has been raising prices, which has helped ARPU. Often, when streaming businesses raise prices, they experience elevated levels of churn, but Spotify CFO Paul Vogel said there has been “no impact” thus far on churn levels from recent price hikes.

Subscription revenue, a key line item, went up 22% to $2.5 billion, while advertising revenue increased 31% to $364 million.

Ek and other executives on the call didn’t list all of the macroeconomic challenges faced by their business and others, but they did mention withdrawing from Russia after the country’s invasion of neighboring Ukraine. Even with that pullout, they said they expect to come in ahead of their initial projections for full-year 2022 subscribers and users.

One acknowledgement of the difficult economic climate has come on the staffing front. The company plans to slow its rate of headcount growth by 25% in the second half of 2022.

Best of Deadline

Sign up for Deadline's Newsletter. For the latest news, follow us on Facebook, Twitter, and Instagram.

Click here to read the full article.

Advertisement