Demand from India helps Spotify grow its user base to 456 million

The Spotify logo on a smartphone.

Online audio streaming service Spotify added 23 million monthly active users (MAUs) in the quarter ended September 30, 2022, taking its total base to 456 millions, driven by growth in markets such as India and Latin America.

During the company's earnings conference call, Spotify CFO Paul Vogel said this member addition represents the largest Q3 growth in the company's history and its year-to-date net additions "are at a record high", excluding the service's exit from Russia earlier this year. Vogel expects this growth to sustain through the end of this year.

In an investor presentation, Spotify said that multimedia marketing campaigns in India resulted in "better than expected intake" in terms of MAUs for the quarter, without disclosing any specific details.

Paying subscribers grew by 13 percent year-on-year (YoY) to 195 millions in Q3, aided by promotional intake and household plans. The service added seven million subscribers during the quarter. It expects to cross the 200 million mark and reach 202 million subscribers by the end of this year.

Revenue from subscriptions, which account for a majority of the company's revenues, grew by 22 percent YoY to €2.65 billion (approximately $2.64 billion) for the quarter. The segment contributed about 87 percent of Spotify's revenues for the quarter.

Read: Spotify expects to reach $100 billion in revenue in 10 years

The company's advertising business grew by 19 percent to €385 million (around $384 million), led by strong double-digit increase in its podcast business. That said, Vogel noted that the macroeconomic slowdown did have some impact on the company's top line advertising growth which also pulled its gross margins to 24.7 percent that were below analyst estimates of 25.2 percent.

Spotify CEO Daniel Ek, however, attempted to allay these concerns on the call, saying that the ads business remains a relatively small portion of its overall revenue to date. The segment accounted for about 13 percent of Spotify's revenues for the quarter.

"There's a lot of global uncertainty. But for Spotify, our business continues to perform very nicely around the world. And outside ads, we aren't seeing much impact at all" Ek said in the earnings conference call.

Spotify's overall revenue grew by 21 percent to €3 billion (approximately $3 billion) for the quarter from €2.5 billion ($2.5 billion) in the same quarter last year.

The company posted an operating loss of €228 million ($227.5 million) due to higher personnel costs with the expansion of the global ad sales team, recent acquisitions and platform investment as well as higher advertising costs for growth initiatives in emerging markets and Gen Z audience segment.

More selective with future investments

Ek said they will be more selective with their overall spending going forward. "We're keenly aware that this is an uncertain time and the cost of capital has increased. You should expect our hurdle rate for new investments to be higher," he said.

Ek mentioned that they will make new investments with two key criteria in mind: It must be accretive to the company's margin (over the investment period) and it must strengthen their value proposition to users and creators over the long term.

"We will be more nimble and more prudent as the times demand. With one quarter left in a year that has seen war, a lingering pandemic, inflation, supply chain disruption, and threats of a global recession, I am really proud of all that we have accomplished and that despite all of this, we are precisely where we thought we’d be," Ek said.