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Spotify has been growing its user base for years with promotions and a shift toward podcasts and audiobooks. But since last year, it has begun to cut costs, including through layoffs and trimming the marketing budget, to boost margins and profits.
The cost-cutting measures paid off, the company’s quarterly revenue increased by 20 percent to 3.64 billion euros, which exceeded analysts’ expectations of 3.61 billion euros. Spotify has been raising prices and experimenting with different subscription plans to boost revenue.
In addition, the company
reported earnings of 97 cents per share, while analysts expected 65 cents.
The gross margin rose to 27.6 percent in the quarter from 25.2 percent a year earlier, partly due to the profit of the podcast business. Spotify has invested more than a billion euros in building its podcast business, including hundreds of millions on popular shows like “The Joe Rogan Experience.”
It (podcasting) was a drag last year. Now, however, it means another profit center for us
– said CEO Daniel Ek.
The cost reductions also have a downside, as the number of monthly active users in the first quarter (615 million), even despite the 19 percent increase, fell short of Spotify’s own forecast and the median estimate of 618 million by analysts. The company explained this by curbing marketing activities. The number of premium subscribers increased by 14 percent to 239 million, which was in line with analyst expectations.
The company forecast 631 million active monthly users for the second quarter, which is below analysts’ estimate of 636.3 million.
During the year, we will restore some marketing expenses. We want to continue to grow, and we saw that maybe we scaled back a little too much in some areas
– said Ek.
Spotify’s share price initially started to fall after the results were published, but soon turned around and is currently up 13 percent.
Source: Reuters
Cover image source: Silas Stein/picture alliance via Getty Images
