What happened
Shares of Spotify (SPOT 11.41%) fell on Wednesday after the audio platform's mounting losses alarmed investors. As of 3:25 p.m. ET today, Spotify's stock price was down more than 11%.
So what
Spotify's monthly active users (MAUs) grew by 20% year over year to 456 million in the third quarter, fueled by strong growth in international markets. That was above management's guidance for MAUs of 450 million and Wall Street's expectations of 448.6 million.
Paying users also increased at a solid pace, albeit slower. Promotions and new household plans helped the streaming company boost its premium subscriber base by 13%, to 195 million. That, too, bested management's and analysts' projections, which had both called for 194 million subscribers.
And Spotify continues to make progress with its advertising initiatives. Its ad-supported revenue rose by 19% to 385 million euros ($388 million), driven by its steadily growing podcasting business.
In all, total revenue jumped 21% to $3 billion euros ($3 billion).
But higher content spending and other growth investments pressured Spotify's profit margins. Its gross margin declined to 24.7% from 26.7% in the year-ago quarter. Spotify, in turn, posted an operating loss of 228 million euros ($230 million), compared to operating income of 75 million euros ($76 million) in the prior-year period.
Now what
To improve profitability, Spotify plans to raise prices on its subscription plans next year. CEO Daniel Ek told The Wall Street Journal that subscribers can expect their streaming plans to increase from the current $9.99 sometime in 2023.
Still, Spotify believes its subscriber base can continue to grow at an impressive clip. The company expects to add roughly 23 million users and 7 million subscribers in the fourth quarter.
