Commentary

Spotify: Paid Subs Up 30%, But Misses Analysts Expectations

Despite strong growth in its podcast business, Spotify reported fewer new paid subscribers than analysts expected during the second quarter.

During the period, the maker of the popular streaming app still saw paid subscriptions increase by a respectable 30% to 108 million, which translated to about $1.67 billion in revenue.

Considering that makes up about 90% of Spotify’s overall revenue,

Revenue from premium subscribers is the life blood of the company, generating about 90% of total revenue.

Total Q2 revenue increased about 30%, to $1.86 billion, year-over-year.

Among other issues, Spotify said that its student-focused product failed to attract as many paid subscriptions as expected.

“That’s on us,” the company admitted in its earnings report. “The good news is that the shortfall was execution-related, rather than softness in the business, and we expect to make up the lost ground before year-end.”

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Still, some analysts said that Spotify’s miss on subscriber growth is a big deal. “The subscriber miss is unlikely to be forgiven,” Lynx Equity Strategies analyst Jahanara Nissar commented in a note to investors.

Spotify’s monthly active users in Q2, on the other hand, exceeded expectations, rising 29% to 232 million.

Spotify said it expects MAUs to reach between 240 million and 245 million in Q3.

The subscription miss comes as Spotify’s war with Apple continues to intensify. This past quarter, the Swedish tech giant asked EU antitrust officials to investigate Apple and its control over the music streaming industry.

Although Spotify and Apple have bickered for years, filing a complaint with the European Commission (EC) was not a decision that Spotify founder-CEO Daniel Ek made lightly. “After trying unsuccessfully to resolve the issues directly with Apple, we’re now requesting the EC take action,” Ek said earlier this year.

Among other offenses, “Apple has introduced rules to the App Store that purposely limit choice and stifle innovation at the expense of the user experience...essentially acting as both a player and referee to deliberately disadvantage other app developers,” Ek said at the time.

Ek said he took particular issue with Apple requiring Spotify and other digital services to pay a 30% tax on purchases made through its payment system.
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