On February 4, Spotify Technology announced its first annual profit and projected quarterly earnings surpassing Wall Street expectations. The Swedish audio-streaming company's performance is attributed to robust user growth, increased prices, and cost-cutting initiatives.
Shares of Spotify, a key rival to Apple and Amazon in music streaming, surged 9% in premarket trading as a result of these positive developments.
This achievement comes after Spotify's sustained efforts to enhance profitability through various strategies such as price adjustments, expense reductions including layoffs, decreased marketing spending, and a strategic shift from heavy investments in podcasting and audio content.
In its latest update, Spotify anticipates an operating income of 548 million euros ($566.2 million) for the current quarter, higher than the analyst consensus of 450.6 million euros based on LSEG data.
Furthermore, their forecast for quarterly monthly active users of 678 million aligns with estimates, while the projection of a 2 million rise in premium subscribers to 265 million surpasses expectations.
CEO Daniel Ek highlighted plans for personalized offerings to attract subscribers, such as the introduction of a new premium tier named "superfans of music," offering additional features.
The positive momentum continued in the fourth quarter with a substantial increase in subscribers, attributed to the Wrapped feature—a year-end summary of users' listening habits—that facilitated social media buzz and boosted user engagement.
In the same quarter, premium subscribers grew by 11% to 263 million, exceeding estimates, while monthly active users saw a record net addition of 35 million, totaling 675 million, outperforming expectations.
Spotify's strategic focus on video music and podcasts to engage users has proven successful. Recent initiatives include expanding music video testing in new markets and introducing features that enhance content creator interaction.
Analyst Grace Harmon noted, Spotify's emphasis on visual and video content, alongside efforts to evolve beyond its traditional audio-only identity, appears to be yielding positive results.
Notably, fourth-quarter revenue surged by 16% to 4.24 billion euros, surpassing estimates, driven by customer growth and a 5% increase in average revenue per user. A strategic price increase in the U.S. contributed to these gains.
Gross profit witnessed a significant 40% surge due to a 16% reduction in operating expenses, resulting in an improved gross profit margin of 32.2% compared to the prior quarter's 31.1%.
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