Spotify Gains 6 Million Paid Subscribers in Q1 as COVID-19 Disrupts Listening Patterns
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Content consumption on Spotify’s streaming platform has been dramatically affected by the COVID-19 crisis — with usage initially down in areas affected by lockdown orders — but the company saw a rebound in active listeners in Q1.
Spotify lowered full-year revenue outlook on uncertainty introduced by the coronavirus pandemic: It’s now expecting €7.65 billion-€8.05 billion in sales ($8.29 billion to $8.73 billion at current exchange rates), down from €8.08 billion-€8.48 billion.
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In addition, Spotify said it will slow hiring for the rest of 2020 “until we have better visibility into the economic impact of COVID-19,” and has reduced open headcount by roughly 30% from prior growth expectations. Even so, Spotify says it’s still hiring and headcount is projected to increase 15% for the year, according to a spokesperson. At the end of Q1, the company had 5,779 full-time employees globally.
For the first quarter of 2020, Spotify netted 6 million new Premium subscribers globally — beating expectations — to stand at 130 million worldwide at the end of the first quarter of 2020, with growth driven by family-plan signups. Total monthly active users grew 31% to 286 million, in line with forecasts, marking the third consecutive quarter of year-over-year growth above 30%.
After a “notable decline” in daily active users and consumption in markets hardest hit by COVID-19, over the last few weeks of the quarter listening started to rebound, and in many markets “consumption has meaningfully recovered,” Spotify said in announcing the Q1 results.
“It’s clear from our data that morning routines have changed significantly. Every day now looks like the weekend,” Spotify said.
During the quarter, Spotify usage declined on car, wearable, and web platforms — by double digits in some markets — but audience through TV and game consoles grew more than 50% over the same time period. The company said it is starting to see growth in reactivations following stay-at-home orders being implemented globally.
“While our sincere hope is for some sense of ‘normalcy’ to return to people’s lives as quickly as possible, we do believe our model is uniquely positioned to not just weather this storm, but to come out the other side even stronger,” Spotify said.
In the first quarter, total revenue of $2.0 billion (€1.848 billion) grew 22% year-over-year, roughly in line with expectations. Ad revenue grew 17% in the period, but fell short of expectations “as a result of impacts from COVID-19, particularly the last three weeks of the quarter,” Spotify said.
Spotify reported net income of €1 million for Q1, or break-even on an earnings-per-share basis, versus a net loss of €142 million in the year-earlier period. Operating expenses rose 16% to $530 million (€489 million) in Q1 but costs were below forecast, as payroll taxes associated with stock-based compensation were $26 million (€24 million) lower than expected. Spotify said COVID-19 reduced expenses in some areas; for example, employee travel was down significantly in the quarter and spending on events and campaigns was postponed or cancelled.
In issuing guidance for Q2 and full-year 2020, Spotify cautioned that COVID-19 creates “a greater likelihood of variances” within its forecasts. For Q2 2020, it projects 289 million-299 million of total monthly active users, with Premium subscribers coming in 133 million-138 million. It projected total revenue of $1.9 billion-$2.1 billion (€1.75 billion-€1.95 billion) and an operating loss of $49 million-$103 million (€45 million-€95 million), which includes expected charitable contributions of roughly €9 million.
On the podcast front, Spotify said that while quarantines have depressed podcast listenership it remains bullish on the long-term strategy. About 19% of monthly active users listen to podcast content, up from 16% the previous quarter, and consumption continues to grow at triple-digit rates year-over-year. There are now more than 1 million podcasts available on Spotify’s platform, and more than 60% of them are powered by Anchor, which the company acquired a year ago. In Q1, podcasts launched via Anchor accounted for more than 70% of new shows launched on Spotify.
In Q1, Spotify launched 78 original or exclusive podcasts worldwide and closed the acquisition of Bill Simmons’ The Ringer, for which it agreed to pay as much as $196 million. The supply of new podcast content was “impacted slightly by COVID-19,” with a 20% decline in the number new episodes published by Spotify’s top 1,000 catalog shows.
Earlier this year, Spotify announced a renewed global licensing partnership with Warner Music Group. “We are pleased with the outcome, and as stated previously, do not believe the new deal will materially impact music economics,” Spotify said in the letter. “We look forward to working together with Warner to grow the music industry over the long term.”
As part of its response to the coronavirus pandemic, in March Spotify launched the Spotify COVID-19 Music Relief project, pledging to match dollar-for-dollar public donations up to a total company contribution of $10 million. On April 22, the company launched Artist Fundraising pick, allowing artists to highlight donations to support themselves or music relief project. “On the first day we saw more than 27,000 artists enable this feature on their profile page and there are approximately 50,000 currently using the feature,” Spotify said.
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