Shares of Spotify (NYSE:SPOT) climbed 8.2% on Wednesday after the audio streaming platform's third-quarter results demonstrated a marked improvement in profitability.
Spotify's monthly active users (MAUs) jumped 19% year over year to 381 million, driven in part by strong growth in Asia and other international markets. The company's premium subscribers also increased 19%, to 172 million, bolstered by promotional campaigns.
Together, these gains helped to fuel a 27% surge in Spotify's revenue, to $2.9 billion, which bested Wall Street's expectations of $2.8 billion.
Notably, Spotify's ad-supported revenue soared 75% to $375 million. "Our ads revenue continues to surpass even our own optimistic expectations," Daniel Ek, Spotify's CEO, said during a conference call with analysts. He went on to say, "This I think, clearly proves the potential for ads to be the second big revenue driver for the future of our business."
Better still, Spotify's profit margin improved as it scaled its revenue base. Its gross margin increased to 26.7%, up from 24.8% in the prior-year quarter. The company's operating income, in turn, checked in at $87 million, compared to a loss of $46 million in the year-ago period.
Spotify's focus on podcasts is clearly bearing fruit. The Spotify Audience Network has been well received by advertisers, who can use the marketplace to connect with a rapidly expanding base of podcast and music streaming listeners. And as ad dollars increasingly migrate from radio and other traditional channels to streaming audio services, Spotify stands well-positioned to profit.