Spotify recently announced its second-quarter earnings, revealing impressive growth in both subscribers and total users. Currently, there are 220 million people worldwide who pay for a Spotify subscription, a 17% increase compared to the previous year. The company’s total monthly active users now reach 551 million, with 36 million new users added in the last quarter.

However, the majority of users, 331 million, are using the free, ad-supported version of Spotify. This indicates that while Spotify is growing well, it attracts more free users than paid subscribers. The percentage of premium subscribers compared to the overall user base has been declining over time. Currently, premium subscribers make up 39.9% of the total user base. This is important because paid users are easier to monetize than ad-supported users.

Regarding gross margins, Spotify generates 28.4% from premium users, while ad-supported users have a negative gross margin of -5.7%. Adjusted ad-supported margin is at +5.7% after accounting for write-off charges on content assets and contract termination. However, Spotify’s overall gross margin of 24.1% falls short of expectations (estimated at 25.5% by Yahoo Finance). In terms of revenue, Spotify reported nearly €3.2 billion for the last quarter, an 11% year-over-year increase. However, the company also reported €247 million in operating losses.

After considering recent layoffs and related charges, the adjusted operating losses amounted to €112 million. Due to the higher-than-expected losses, Spotify’s shares experienced a 9.30% decline in pre-market trading, currently priced at $148.50 per share. To improve its financials, Spotify has finally decided to raise its subscription prices. In the U.S., individual premium plans now cost $10.99 per month, up from $9.99. Duo and family plans also saw price increases. These price hikes will also affect other markets, potentially impacting Spotify’s bottom line positively in the future.

Overall, Spotify shows robust growth in users and subscribers, but it needs to carefully manage its pricing strategies to boost profitability.

Categorized in: