Spotify posts profit in Q3 after price hike; user base jumps 26% to 574 million

Spotify last reported an operating profit of €75 million in Q3 2021. It reported an operating loss of €247 million in Q2 2023.

Audio streaming service Spotify has posted an operating profit of €32 million for the third quarter of 2023, marking the company's first profitable quarter in two years.

The service last reported an operating profit of €75 million in Q3 2021. It reported an operating loss of €247 million in Q2 2023.

This development comes on the back of the Swedish streaming service rolling out a price hike for its premium service in over 50 markets, including the United States, Canada, Australia, France and the United Kingdom among others during the quarter.

Higher gross margin, as well as lower than expected marketing spend, personnel and related costs, also helped the service return to profitability, the company said.

Total revenue grew by 11 percent year-on-year (YoY) to €3.4 billion for the quarter. On a constant currency basis, the total revenue grew 17 percent YoY, the company said. The gross margin was at 26.4 percent for the quarter, up 166 basis points from the year-ago quarter.

Spotify also witnessed robust subscriber and user growth across the world during the quarter.

The service added 23 million monthly active users (MAUs) in Q3 2023, posting its second-largest Q3 net addition in the company's history.

The company's total user base rose by 26 percent YoY to touch 574 million for the quarter, driven by double-digit yearly growth across all regions, with "outperformance" in Latin America and the Rest of the World region that includes India.

Spotify, which counts India among its top five markets in terms of the user base, however, didn't disclose specific information on its performance in the country for Q3 2023. That said, Spotify is looking to shore its paid subscriber base in the country by introducing listening restrictions to free users in India earlier this month.

Globally, paying subscribers grew by 16 percent YoY to 226 million subscribers, with "outperformance" results across all regions, led by North America and Latin America. The company said that it witnessed better-than-expected gross intake in markets that saw price hikes during the quarter. Promotional campaigns during the quarter also contributed to this growth, it said.

The company now expects to reach 235 million subscribers and 601 million monthly active users in Q4 2023.

Revenue from subscriptions, which account for the majority of the company's revenue, grew by 10 percent YoY to €2.91 billion for the quarter, led by subscriber growth and the early effects of the price increases.

The average revenue per user from the subscription business dipped by 6 percent YoY to €4.34 for the quarter, impacted by product and market mix that was partially offset by price increases, the company said.

The company's advertising business grew 16 percent to €447 million for the quarter. The segment contributed about 13.3 percent of Spotify's revenues for the quarter. This growth was led by music advertising revenue that rose by nearly 20 percent YoY, driven by growth in impressions sold and stable pricing.

Podcast advertising revenue growth remained in the "healthy double-digit" range, led by growth in sold impressions across its original and licensed podcasts and the Spotify Audience Network, the company said.

During the quarter, Spotify expanded its artificial intelligence (AI) DJ feature to Premium users in over 50 markets and piloted AI-powered voice translations to translate select podcasts into additional languages in the same podcaster's voice.

The company also introduced new features such as daylist, a hyper-personalized dynamic playlist that is refreshed multiple times on a daily basis based on the time of the day and Jam, a social listening feature that lets people curate and listen to collaborative playlists with their friends.

Earlier this month, Spotify also made over 150,000 audiobooks available to Premium Subscribers in the United Kingdom and Australia with up to 15 hours of free listening every month.