Spotify Users Grow 22% to 515 Million in First Quarter

Spotify’s user base grew 22% to 515 million in the first three months of 2023, the audio streaming giant’s fastest-ever listener growth in the first quarter. But the Swedish company reported Tuesday that it posted a wider-than-expected loss for the period as ad revenue came in below forecasts.

The strong user growth and the company’s positive forecast for the current period nevertheless sent shares higher. Spotify Technology SA’s U.S.-listed shares added $6.36, or 4.8%, to $137.81 in morning trading.

User additions came from both developed and developing markets and nearly all age groups, Spotify said. Monthly active users topped the 500 million the company forecast, and premium subscribers — the ones who provide the bulk of the company’s revenue — rose 15% to 210 million, above the 207 million Spotify predicted.

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But even with the growth spike, average revenue per user slipped 1% to $4.70, in part reflecting discount plans and lower prices used to draw users in developing markets. Spotify has made efforts to increase the amount of time users spend on the platform, including tweaking its service in recent months to introduce video and rejiggering its home page to include TikTok and YouTube-like recommendations for music, podcasts and audiobooks.

CEO Daniel Ek said during a conference call to discuss results that the company is being cautious about airing music generated through artificial intelligence, like the AI songs created using Drake and TheWeeknd’s vocals that surfaced online last week.

Using AI is a “very, very complex issue,” Ek said. Spotify aims to “strike a balance” between allowing innovation on the platform and helping right-holders and artists protect their work. “We take that role of guardian very seriously,” he said.

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For the three months that ended in March, Spotify posted revenue of $3.31 billion, up 12% from $2.96 billion a year ago. Ad revenue grew 17% from last year’s first quarter, to $357.8 million, but plunged 31% from the fourth quarter of 2022. The results came in short of the $3.37 billion analysts surveyed by Zack’s Investment Research expected.

The ad slowdown reflects conditions across the tech and media industries, which have sparked widespread layoffs, including at Spotify, which in January cut its global workforce by 6%, or about 600 staffers, and shuffled executives.

About 89% of the service’s revenue, or $3 billion, came from premium subscribers, reflecting growth of 14% from last year’s first quarter, but was down about $4 million from the last three months of 2022.

The company posted a loss of $169.7 million, or $1.24 per share, a wider loss than the $1.01 per share forecast by analysts surveyed by Zack’s. A year ago, Spotify’s loss was 24 cents per share.

One contributing factor to the loss was that operating expenses came in higher than anticipated, in part because of severance-related charges related to layoffs.

Ek said during the conference call to discuss results that he made some mistakes as Spotify invested heavily in podcasting. “I probably got a little carried away and over-invested,” he said.

For the second quarter, Spotify predicted its monthly active users will rise to 530 million, with premium subscribers rising to 217 million, on revenue of $3.54 billion.

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