Spotify Technology (SPOT) reported fiscal second-quarter earnings on Tuesday that beat expectations as the audio giant posted record earnings, gross margin and free cash flow in the quarter following its latest “efficiency” strategy.
Revenue came in in line with estimates while monthly active user metrics disappointed, and investors shrugged off both as the stock rose more than 10% in afternoon trading.
In June, Spotify announced it would raise prices for its premium subscription plans in the US, with the increases set to take effect this month. Spotify had raised prices last summer.
In addition to pricing adjustments, the company has committed to multiple rounds of layoffs and initiatives to boost revenue growth and improve margins, Like the music broadcast layer only. And Audiobooks Only PlanIt also offers a higher-priced audio package that includes music, podcasts, and audiobooks.
The audio giant reported operating income of €266 million ($289 million), compared with a loss of €247 million in the same period last year. That was above the company’s forecast of €250 million, driven by “lower headcount, related costs and lower marketing spend.”
It also led the company to strong third-quarter operating income of €405 million ($440 million), well above Wall Street expectations of €298.1 million.
The streaming service reported net income of €274 million ($298 million), or earnings of €1.33 ($1.44) per share. That was well above analysts’ expectations of €1.04 per share. It also compared with a loss of €302 million ($327.77 million) in the year-ago period, or a loss of €1.55 ($1.68) per share.
Gross margins came in stronger than expected at a record 29.2%, beating the company’s forecast of 28.1%. The company said it expects margins to rise to 30.2% in the third quarter, well above expectations, primarily due to year-over-year improvements in music and podcasting.
Spotify previously said it expects the metric to range between 30% and 35% in the long term amid plans to expand its audio streaming and advertising businesses.
Meanwhile, revenues came in at €3.81 billion ($4.14 billion), in line with expectations — up 20% from Q2 2023. The company expects revenues to reach €4 billion in the third quarter, compared to €3.4 billion in the same period last year.
Wall Street analysts attributed Spotify’s superior gross margin and better-than-expected guidance for third-quarter operating income and gross margins as the main catalysts for the stock’s positive reaction.
User numbers
Total monthly active users (MAUs) fell short of the company’s estimate of 631 million to 626 million in the quarter — but still a 14% improvement over the total in the same period last year. The streaming service expects MAUs to reach 639 million in the third quarter.
Premium subscribers topped the company’s forecast of 245 million, reaching 246 million — a 12% increase year over year. Spotify expects subscribers to grow to 251 million in the third quarter.
Free cash flow, another key metric for investors, reached a record €490 million in the quarter compared to €9 million in the same period last year.
Average revenue per user, or ARPU, for premium subscriptions rose 8% year-over-year to €4.62 (or 10% year-over-year, excluding foreign exchange headwinds). The company said ARPU was driven by the benefits of price increases that were partially offset by discounted plans and lower prices in emerging markets.
profit pledge
Spotify has spent $1 billion entering the audio streaming market over the past four years. Great first class deals And studio acquisitions worth over $400 million.
This spending has eaten into gross margins and had a significant impact on profitability.
After its shares fell, the audio giant pledged to improve its profitability starting in 2023 based on gross margin and operating income.
The company also announced earlier this year that it planned to be more intentional about future investments, and has since adjusted its podcast strategy to focus more on distribution rather than exclusivity.
Spotify has also changed its ownership structure, making it Free audiobooks for paying subscribersand closed in New offers With popular podcasters like Joe Rogan and Alexandra Cooper of “Call Her Daddy.”
The stock has surged as a result, with shares up more than 50% year-to-date, and about 70% on a year-to-date basis.
Alexandra Channel She is a senior reporter at Yahoo Finance. You can follow her on X @Ali_Canal, LinkedIn, You can email her at [email protected].
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