Spotify Technology ( SPOT ) reported second-quarter earnings on Tuesday that beat expectations as the audio giant posted record profits, net profit and free cash flow in the quarter after a recent strategy of ” work”.
Revenue matched estimates while monthly operating metrics disappointed, both of which disappointed investors as the stock rose more than 10% in aftermarket trading.
In June, Spotify announced that it would raise the prices of its US subscription plans, with the increase starting this month. Spotify raised prices last summer.
On top of the price changes, the company is committed to a number of layoffs and measures to boost top-line growth and network improvements, such as a music-only streaming strategy and only audiobooks. It has also launched a premium audio collection that includes music, podcasts and audiobooks.
The audio giant reported net income of 266 million euros ($289 million), compared to a loss of 247 million euros in the year-ago period. This was above the company’s guidance of 250 million euros, driven by “lower staff and costs related to lower sales.”
It also guided to strong Q3 operating income of 405 million euros ($440 million), ahead of Wall Street consensus expectations of 298.1 million euros.
The streaming service reported revenue of 274 million euros ($298 million), or earnings of 1.33 euros per share. That was ahead of analyst expectations for earnings of 1.04 euros per share. It also compares with a year-ago loss of 302 million euros, or a loss of 1.55 euros per share.
Total margins came in stronger than expected at a record 29.2%, exceeding the company’s guidance of 28.1%. The reporter said he expects the signal to reach 30.2% in the third quarter, ahead of the forecast, which is mainly influenced by the annual improvement in music and podcasting.
Spotify has previously said it expects the metric to increase between 30% and 35% over the long term as it plans to increase its podcasting and advertising business.
Revenue, however, met expectations of 3.81 billion euros ($4.14 billion) – 20% higher compared to the second quarter of 2023. The company expects that the revenue the incoming will hit 4 billion euros in Q3 against 3.4 billion euros last year.
Wall Street analysts cited Spotify’s stronger-than-expected earnings and better-than-expected guidance for Q3 operating income and overall earnings as drivers of the positive response. of stock.
User statistics
Total monthly active users (MAUs) came in below the company’s estimates of 631 million to 626 million in the quarter — but it was still a 14% improvement compared to the total of last year. The streaming service expects Q3 MAUs to reach 639 million.
Initial subscribers came in above the company’s expectation of 245 million to hit 246 – a jump of 12% year-on-year. Spotify expects the number of subscribers to increase to 251 million in the third quarter.
Free cash flow, another important metric for investors, reached a record 490 million euros in the quarter compared to 9 million euros last year.
Average revenue per user, or ARPU, for Premium subscriptions increased by 8% year-on-year to 4.62 euros (or 10% year-on-year, excluding strong foreign exchange ). lower prices in emerging markets, the company said.
Profit commitment
Spotify has spent $1 billion pushing into the podcast market over the past four years with splashy A-list deals and $400 million-plus in studio assets.
That use cost a lot of money and generated a lot of profit.
After its stock fell, the audio giant pledged to improve its profitability starting in 2023 in favor of revenue and operations.
The company also said earlier this year it plans to be more proactive about future investments. It has since changed its podcast strategy to focus more on distribution rather than specialization.
Spotify also changed its royalty structure, made audiobooks pay for subscribers, and locked in new deals with popular podcasters like Joe Rogan and Alexandra Cooper of “Call Her Daddy.”
The stock has rallied as a result, with shares gaining more than 50% since the start of the year and up 70% for the year.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow him to X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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