Finance
Spotify predicts strong quarter after cost cuts power first annual profit
Published by Global Banking and Finance Review
Posted on February 4, 2025
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Published by Global Banking and Finance Review
Posted on February 4, 2025
By Jaspreet Singh
(Reuters) -Spotify Technology reported its first annual profit on Tuesday and forecast quarterly earnings above Wall Street estimates, as the Swedish audio-streaming giant benefits from strong user growth, price hikes and a cost-cutting drive.
Shares of the company, which competes with Apple and Amazon's music streaming offerings, rose nearly 10% in early trading.
The results mark the culmination of months-long efforts by Spotify to boost profitability through price increases and cost cuts, including layoffs, reduced marketing spend and a pullback from hefty investments in podcasting and audio.
Spotify said it expects operating income of 548 million euros ($566.2 million) in the current quarter, above analysts' estimate of 450.6 million euros, according to LSEG-compiled data.
Its quarterly monthly active users (MAU) forecast of 678 million was in line with an estimate of 679.4 million, while its prediction for a 2 million increase in premium subscribers to 265 million was above a Visible Alpha estimate of 263.2 million.
CEO Daniel Ek said in an interview that the company plans to experiment with more personalized offerings to attract subscribers, including a new premium tier called "superfans of music" that would come with additional features.
"For the next step in the music industry's growth, we're going to have not just one product for all people, but actually different types of products, different types of affinities, and one of those products is superfans of music," he said.
RECORD USER ADDITIONS
His remarks followed a strong fourth quarter in which Spotify added a record number of subscribers thanks to Wrapped — its year-end roundup of users' listening habits — that generates social media buzz and helps draw users to the service.
Premium subscribers rose 11% to 263 million in the quarter, compared with a Visible Alpha estimate of 260 million. Record MAU net additions of 35 million brought the total to 675 million and exceeded expectations.
Spotify has also sharpened its focus on video music and podcast offerings to attract users. It has in recent months extended a test rollout of its music videos to new markets and unveiled new features that help improve user engagement for content creators.
"The streamer put significant investment and attention toward visual and video content — neither of which are what Spotify is known for — and its effort to rebrand away from being an audio-only platform seems to be working," said eMarketer analyst Grace Harmon.
Fourth-quarter revenue rose 16% to 4.24 billion euros, beating an estimate of 4.19 billion euros, driven by subscriber gains and a 5% increase in average revenue per user. Spotify hiked prices in the U.S. in June last year.
Gross profit jumped 40% thanks to a 16% decline in operating expenses. Gross profit margin increased to 32.2% from 31.1% in the prior quarter.
($1 = 0.9679 euros)
(Reporting by Jaspreet Singh in Bengaluru; Editing by Krishna Chandra Eluri and Mrigank Dhaniwala)