Spotify Q4 2018 Earnings Strong Subscriber Growth With a Hint of Profitability but Long-Term ARPU Deflation

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The 20,000 Foot View:  Spotify finished 2018 strongly, over performing in both subscriber and ad-supported MAU additions. This was accompanied by Spotify’s first ever profitable quarter and two major podcast acquisitions early in 2019, hinting at a positive year ahead. However, at the same time, premium ARPU continues a long-term decline. This is the price Spotify is paying for maintaining global subscriber market share.

Key Findings

• Spotify hit        million subscribers, up        from        million in        2017
• Spotify added        million net new subscribers in        2018, the same as in        2017
• Ad-supported users grew strongly, adding        million, which was significantly more than the        million added the previous year
• Europe is now a majority premium region for Spotify, with        of European MAUs in        2018 paying a subscription 
• Year-on-year, North American share of global subscribers decreased from        in        2017 to        in        2018
• Annual European growth was largest with        million registered in        2018 – this was        higher than        2017, compared to a        increase in Latin America
• Globally,        2018 points to Spotify improving conversion rates in all markets, and potentially becoming a majority premium business at some stage in 2019 or 2020
• Premium revenue in Europe grew by        in 2018 (adding        million net new revenue) compared to        annual growth in 2017        million net new revenue)
• Ad-supported revenue grew by        in 2018 (adding        million net new revenue) compared to               million net new revenue) in 2017
• Premium revenue needs new momentum, while ad-supported revenue needs to start delivering  
• Following a peak of        in        2018, Spotify brought quarterly churn rates down to        in        2018 and then        in        2018
• The cumulative impact of churn throughout the year gave an annual churn rate of        up from        in 2017 
• Spotify added        million gross new subscribers in 2018 compared to        million in 2017
• Premium ARPU declined from        in 2016 to        in 2018, a fall of       
• Over the same period, ad-supported ARPU followed a mirror opposite trend, growing        from        to       
• Spotify slightly increased its global subscriber market share to        in 2018, up from        in 2017, but is having to discount pricing aggressively to do so
• Spotify’s average advertising revenue per user (AARPU) grew by just        in 2018, but investments in ad tech and infrastructure will likely see accelerated growth in 2019
• Podcasts are Spotify’s next big play, and will likely see Spotify commissioning top-quality radio content from right under the noses  of radio companies

Companies and brands mentioned in this report: Amazon, Amazon Music Unlimited, Anchor, Apple, Apple Music, Gimlet, Spotify