Spotify Technology SA’s billions of investment in advertising technology and developing a podcast business are starting to pay off.
The company, which has historically derived nearly all of its revenue from paid subscriptions to its services, saw ad revenue leap by 75% to $323 million euros in the third quarter.
That brought advertising’s share of total revenue to a new high of 13%.
The company — which has been under increasing pressure this year from investors impatient with its audience network strategy, including the new podcast business — is now projecting that annual ad revenue will exceed 1 billion euros for the first time in 2021, to hit $1.16 billion, and that advertising will eventually represent 20% of total sales.
The podcasting business’s growth is surpassing forecasts and Spotify’s advertising “continues to surpass even our own optimistic expectations,” CEO Daniel Ek said in Spotify’s quarterly earnings call.
The paid or premium subscriptions revenue channel rose 22%, to 2.18 billion euros in the quarter, bringing total revenue to 2.5 billion euros (+7%).
Premium subscribers rose 19% year-over-year, to 172 million, hitting the middle of the company’s guidance range.
Monthly active users (MAUs) also rose 19% YoY, to 381 million — up from 365 million in Q2 and near the top end of the company’s guidance range. All regions saw double-digit growth, including 86 new markets, led by South Korea, Bangladesh and Pakistan.
Operating income rose to 75 million euros — up from 12 million in Q2 and a 40-million loss in the year-ago third quarter.
Starting in 2021, Spotify invested in modernizing its audio advertising, including implementing streaming ad insertion, expanding its Ad Studio self-serve ad platform, and acquiring Megaphone, one of the world’s biggest podcast advertising and publishing platforms.This February, the company officially launched the Spotify Audience Network, an audio advertising marketplace that includes the brand’s original and exclusive content, podcasts via Megaphone and Anchor (a free platform for creating podcasts), and ad-supported music.