Spotify reported its first quarterly profits in more than a year after shrinking its investment in podcasts and hiking its monthly subscription prices.
Despite the increased fees, the music streaming platform gained 336 million paying subscribers year on year, boosting its revenue 11 percent to $3.56 billion.
Reduced costs, thanks to slimmed down spending on marketing and staff, saw it post its first positive operating income in more than year, albeit a relatively slim $34 million. Its profits were around $69 million.
After spending more than a billion dollars building up its podcast business in recent years, Spotify laid off around 600 employees in January.
Then in June, it cut another 200 employees, mainly involved in its podcast business, and said it would not renew the second season of Meghan Markle’s Spotify podcast Archetypes. In July it raised prices for its premium plans.
Spotify reported its first quarterly profits in more than a year after hiking its subscription prices in July and subsequently reducing its investment in podcasts. Pictured is its headquarters in Lower Manhattan
After spending more than a billion dollars building up its podcast business, Spotify laid off 6 percent of its employees earlier this year
Spotify’s share price was up more than ten percent after trading opened on Tuesday morning, bringing it to more than $170.
‘We are still focusing on efficiencies, but efficiencies for us doesn’t mean just cost cutting, it means getting more out of each dollar,’ CEO Daniel Ek told Reuters.
Its CFO Paul Vogel described the third-quarter results as an ‘inflection point’ for the company.
‘You never know what can happen in any one quarter, but we feel good that we’re on a different trajectory and we’ve hit an inflection point with respect to profitability,’ said Vogel during the call.
In January, the company also announced the exit of Dawn Ostroff, the executive who helped shape its podcast business. Investment in podcasts led to a surge in Spotify’s expenses in recent years.
In 2020, it signed Joe Rogan in a deal worth an estimated $200 million. That year it also signed a $20 million deal with Prince Harry and Meghan Markle, but due to what the Wall Street Journal reported was a ‘lack of productivity’ it was severed.
Bill Simmons, head of podcast innovation and monetization at Spotify, described the pair on his own podcast in June as ‘f*****g grifters’.
Last year, Spotify’s operating expenditure grew at twice the rate of its revenue. The company was also affected by rising interest rates and high inflation, reducing the amount businesses spent on advertising.
In July it announced it would increase the cost of its premium subscriptions by around $2 each – raising ‘Premium Single’ to $10.99 and its ‘Family’ plan to $16.99.
In the third quarter, between July and September, Spotify’s gross margin rose to 26.4 percent – up nearly 2 percent from a year earlier.
While its recent profits are not substantial, they are significant because Spotify has never recorded an annual profit since going public in April 2018.
Spotify’s share price was up more than ten percent to more than $170 after trading opened on Tuesday morning
Daniel Ek (pictured), founder and CEO of Spotify, said on Tuesday that the company was still focusing on efficiencies
The platform also announced on Tuesday morning that its monthly active users, those using the service for free, were up 26 percent, to 574 million. It said expects to exceed 600 million active users by the end of the year.
It also expects paying subscribers to reach 235 million before the end of the year, bringing its revenue to $3.9 billion.
‘We believe moving forward, we should see pretty consistent growth in our operating income,’ Vogel said.
Spotify’s monthly user forecast for the fourth quarter put the company on track to reach 1 billion users and $100 billion in revenue annually by 2030.