Spotify Has Paid Out Over $1B to Rights Holders…

Spotify grew its user base more than expected during the third quarter – it was not enough to convince the market. Now the streaming giant Daniel Ek confirms that they have entered a new phase of their business; To start raising prices.

The Swedish streaming giant Spotify has risen sharply in the general technology rally on the New York Stock Exchange during the corona pandemic. The share has almost doubled to $ 276.14 since the turn of the year, calculated before Wednesday’s stock market opening.

Now the company has shown the cards for its third quarter – and the share falls by around 4 percent in US trading to 265 dollars.

Spotify now has 320 million users, clearly higher than its own forecast of 312-317 million. The company points out that they had a record low loss of customers who chose to close their account during the period.

However, it is the ad-financed free version of Spotify that is growing the most, which could be a future cloud of concern as advertising revenue only accounts for about one tenth of Spotify’s sales.

On the positive side, however, the advertising business returned to growth during the third quarter, following a drop in advertising purchases during the first half of 2020 due to the corona pandemic.

The number of paying premium customers, who pay for their subscriptions themselves, also beat analysts’ expectations. These landed at 144 million, but that was only in the higher range of Spotify’s own forecast.

The average revenue per user thus continues to decrease. The key figure came in at 4.19 euros, which is 10 percent lower than the same period last year.

User growth in the established markets of North America and Europe was modest, at 4 and 1 percent, respectively. The regions Latin America and the “rest of the world” showed the fastest growth with 30 and 51 percent, respectively. Contributing to the large increase were India and Russia, where the company has seen a strong influx of paying customers since its establishment in July. The company then also entered twelve other markets in Eastern Europe.

Sales landed at EUR 1,975 million during the third quarter, slightly lower than Bloomberg’s analyst estimate of EUR 2,008 million.

Today, Spotify retains only a quarter of its revenue while the rest goes to record companies, artists and songwriters. The gross margin of 24.8 percent was in line with analysts’ expectations for the quarter.

The operating loss at EBITDA level was slightly better than expected in the third quarter, according to Bloomberg’s analyst estimates, and landed at EUR 40 million.

However, the free cash flow corresponded to EUR 103 million during the period, and the cash amounts to EUR 2 billion, which means that CEO Daniel Ek does not have to go to the market to raise new capital.

Spotify has had individual profitable quarters since the listing in 2018, but the company is expected to decline during the fourth quarter as well. CEO Daniel Ek has previously described that the whole of “2020 is an investment year”.

A lot of capital and resources are devoted to Spotify’s investment in podcasts. Now 22 percent of all customers listen to podcasts via the platform every month, the company states, which is a marginal improvement from the end of the second quarter.

The company expects to make a loss of between 112 and 32 million euros during the last quarter of the year, according to new forecasts, while sales appear to strengthen to between 2,000 and 2,200 million euros.

At the turn of the year, Spotify further expects to have grown its total user base to 340-345 million, while the number of paying customers is expected to amount to 150-154 million.

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Spotify Has Paid Out Over $1B to Rights Holders. - /10


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