Spotify's Q2 paid subscribers rise 12% to 246 million; clocks record quarterly profit

Spotify has undertaken various measures in the past year to rein in costs and drive profitability in a tough environment

Audio streaming service Spotify has posted a record operating profit of €266 million for the second quarter of 2024, driven by the company's healthy subscriber gains and recent cost-cutting efforts.

A higher gross margin, lower marketing spend, and lesser personnel and related costs helped the company post its third profitable quarter in two years.

Spotify had earlier posted an operating profit of €168 million in Q1 2024 and €32 million in Q3 2023. The service had reported an operating loss of €247 million in the year-ago quarter (Q2 2023).

Spotify's net profit was at €274 million for the quarter, as compared to €302 million loss in the same quarter last year.

Over the past year, Spotify has undertaken various measures to rein in costs and drive profitability in a tough environment. This includes three rounds of layoffs in the past year and cutting back spending on podcast productions.

In June, Spotify increased the prices of its premium service in the United States for the second time in a year. This move followed a previous price hike rolled out in the country in July last year, along with over 50 other markets including Canada and the United Kingdom.

Spotify also introduced a new basic pricing tier that offers ad-free music and podcasts to subscribers without free audiobook listening time. This tier is currently available in the United States, Australia, and the United Kingdom.

Total revenue grew 20 percent year-on-year (YoY) to €3.8 billion for the quarter, from €3.2 billion revenue in the same quarter last year. On a constant currency basis, the total revenue grew 21 percent YoY, the company said. The gross margin was at 29.2 percent for the quarter, up 510 basis points from the year-ago quarter.

“It’s an exciting time at Spotify. We keep on innovating and showing that we aren’t just a great product, but increasingly also a great business,” said Spotify CEO Daniel Ek.

“We are doing so on a timeline that has exceeded even our own expectations. This all bodes very well for the future.” Ek said.

Healthy subscriber gains

Spotify added 7 million paid subscribers during the quarter, taking its total paid subscriber base to 246 million in Q2 2024, a 12 percent YoY. The company said it witnessed growth across all regions, led by "outperformance" in North America and Europe.

The service added 11 million monthly active users (MAUs) in Q2 2024, taking the total base to 626 million for the quarter, a 14 percent increase YoY. The user base was however below the company's guidance by 5 million amid continued recalibration of its marketing activities.

The company now expects to reach 251 million subscribers and 639 million monthly active users in Q3 2024.

Revenue from subscriptions, which account for the majority of the company's revenue, grew 21 percent YoY to €3.35 billion for the quarter, led by subscriber growth and an increase in average revenue per user (ARPU) from premium subscribers.

Premium ARPU grew by 8 percent to €4.62, benefiting from price hikes, partially offset by product and market mix, the company said.

The company's advertising business grew 13 percent YoY to €456 million for the quarter. The music advertising growth was driven by increase in impressions sold and increased pricing. Podcast advertising revenue growth was driven by increase in impressions sold across original and licensed podcasts and the Spotify Audience Network.

During the quarter, Spotify said the company expanded its video podcast catalogue to more than 250,00 shows and more than 170 million users have watched a video podcast on the platform. The firm also included over 250,000 audiobook titles into its premium offering in Canada, Ireland and New Zealand.

Indian artists were discovered by first-time listeners nearly 10 billion times on Spotify, the company said.

Spotify also rolled out an AI Playlist feature in beta, enabling users in the United Kingdom and Australia to create playlists by typing in their own prompts.

The audio streaming company also introduced a new in-house ad creative agency called Creative Lab and announced a generative AI tool called Quick Audio for advertisers to create scripts and voiceovers.