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Spotify Q3 2018 Earnings Metrics on Track But Investors Not Convinced

Report by Mark Mulligan
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The 20,000 Foot View:  Spotify’s        2018 earnings once again showed continued solid progress across most of its performance metrics, with strong progress in many areas. However, weakening investor confidence across US tech stocks as a whole, coupled perhaps unrealistic investor expectations saw Spotify’s share price fall again.

Key Findings

  • Spotify reported        million subscribers in        2018, up        on        2017, which is in line with MIDiA’s        million forecast made at the start of 2018
  • Inactive subscribers were up by one million to reach five million – the first increase since        2017
  • Ad supported monthly active users (MAUs) returned to growth in        2018, adding five million users – the same increase that was registered one year previously 
  • A pattern of seasonal cyclicity is emerging for Spotify’s ad supported business
  • Subscriber growth was largely the same across all regions, but ad supported grew strongly in Latin America – up       
  • Gross margin in        2018 fell slightly from the previous quarter to reach        reflecting the recurring six monthly cycle of promotional campaigns 
  • Premium revenue grew by        during        2018 to reach        billion, a faster rate than the        by which subscribers increased during the same period, with a gross margin of       
  • Ad supported was still just        of total revenue in        adding just        million of revenue, compared to        million for premium revenue
  • Spotify ARPU was down in        2018 across three key measures: premium, rights holder and gross profit
  • Churning out users from        promotional trials drove ARPU down in       
  • Quarterly subscriber churn was down to        the second successive quarter of decline, down        each quarter year-on-year
  • Factoring in churn, Spotify added nine million subscribers in total, which means that it lost five million, one more than it retained
  • Delivering good, steady growth is good enough for the music industry, but not good enough for investors

Companies and brands mentioned in this report: Spotify

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