It wasn't long ago that Apple services chief Eddy Cue noted that the entire music industry had yet to hit 100 million paid subscribers. "We can't forget that, as an industry, we still have very few music subscribers," Cue told Billboard in late 2016. "There are billions of people listening to music and we haven't even hit 100 million subscribers. There's a lot of growth opportunity." At the time, Apple Music had about 20 million paid subscribers and Spotify (SPOT +1.01%) had nearly 50 million.
Spotify just hit 100 million premium subscribers all on its own.
Spotify CEO Daniel Ek. Image source: Spotify.
Premium subscribers hit nine digits
The Swedish music-streaming leader reported first-quarter earnings this morning, including that milestone that was at the top of the company's guidance, which had called for 97 million to 100 million premium subscribers. Total monthly active users (MAUs) climbed to 217 million, with ad-supported MAUs reaching 123 million. Remember that premium subscribers and ad-supported MAUs don't add up to total MAUs due to some inactive premium subscribers.
Data source: SEC filings. Chart by author.
Spotify launched in India in February, and the company says that 1 million users signed up within the first week before growing to 2 million users. It's unclear how many of these users may be premium subscribers, but the majority are likely ad-supported MAUs.
Aggressive promotional activity and continued uptake of Family Plans helped push premium subscribers to the 100 million mark through ongoing offers for free Google Home Minis and a price reduction for Spotify and Hulu when bundled together. Promotions have been one of Spotify's most potent tools in defending against Apple Music, which reportedly overtook Spotify in the U.S. market in February.
Financials in the first quarter
Total revenue jumped 33% to 1.5 billion euros ($1.7 billion), with premium average revenue per user (ARPU) of 4.71 euros ($5.26), roughly flat from a year ago but down on a sequential basis. Premium ARPU has been trending down in recent quarters, mostly due to shifts in product and geographic mix of the user base, but Spotify says the downward pressure on premium ARPU has now "moderated" and the declines for the balance of the year should be in the "low single digits."
Data source: SEC filings. Chart by author.
Most of the ARPU impact (75%) is due to product mix changes, with the rest related to "geographic mix and other factors."
Gross margin came in above guidance at 24.7%, which Spotify attributed to strong premium subscriber additions, slower releases of original podcast content, and supply constraints around the smart speaker promotion.
Total operating expenses rose 30% to 420 million euros ($469 million), leading to an operating loss of 47 million euros ($52.5 million). Net loss was 142 million euros ($158.6 million).
Betting big on podcasts
Spotify's minority stake in Tencent Music jumped to 2.3 billion euros ($2.6 billion), reflecting the 37% rise in those shares during the first quarter.
In addition to the two previously announced acquisitions of Gimlet and Anchor to expand into podcasts, the company also recently scooped up Parcast, which it is now disclosing it spent 50 million euros ($55.8 million) on.
The total cost for all three podcasting acquisitions was around 358 million euros ($400 million), which means Spotify has hit the low end of how much it had previously allocated for 2019 acquisitions ($400 million to $500 million).
What comes next
For the second quarter, Spotify expects MAUs to reach 222 million to 228 million, with premium subscribers of 107 million to 110 million. Total revenue should be 1.51 billion to 1.71 billion euros ($1.69 billion to $1.91 billion). Gross margin is forecast at 23.5% to 25.5%, and operating loss should be 15 million euros to 95 million euros ($16.8 million to $106.1 million).
