Spotify hits right note as subscriber numbers and revenues rise

The loss-making group, which listed on Wall Street in April with a market value of $26bn, said third-quarter revenues were €1.35bn, a 31% increase on 2017 and 6% on the second quarter. The operating loss narrowed from €73m to €6m.

Total monthly active users were 191m, ahead 28%, while premium subscribers – who pay for the service – reached 87m, a 40% year-on-year increase. Average revenue per user was €4.73, a 6% decline on 2017, which Stockholm-based Spotify attributed to growth in cheaper family and student plans.

Spotify said it had been able to narrow losses because it had not been able to hire as many staff as it needed during the period, which significantly curtailed costs.

The hiring shortfall had continued into the current quarter, but Spotify told investors: “However, we intend to accelerate the pace of investment in R&D and content in 2019 in order to capitalise on near-term and long-term growth opportunities. If we are successful in accelerating our investments, these are likely to reduce our operating margins for the foreseeable future.”

R&D makes up the greatest share of Spotify’s global headcount, at around 40%.

George Salmon, equity analyst Hargreaves Lansdown, said: “Revenue and subscriber growth are both healthy, and the lower-than-expected costs mean losses have come in well below forecast levels.

“However, the strong-than-expected income statement is actually just a function of Spotify struggling to hire at the pace it would like. While that’s kept costs down, investors would rather see Spotify building up staff levels at the rate its lofty growth ambitions demand.”

Shares in Spotify fell in early trading, losing 7%, as investors digested the third-quarter numbers and Spotify's predictions for the fourth quarter. The group expects revenues to be between €1.35bn and €1.55bn, slightly below average analyst estimates, and has pencilled in between 93m and 96m premium subscribers by the end of the year.