By Dawn Chmielewski
(Reuters) – Audio streaming service Spotify Technology SA Tuesday surpassed Wall Street’s estimates for revenue and subscriber gains in its third quarter, but said challenging economic conditions led to slower than forecast advertising growth.
Spotify said third-quarter margins were less than it had expected, blaming “some softness in advertising,” currency fluctuations and retroactive royalty payments to songwriters and music publishers.
“This is an early indicator of the concerns businesses are having about the economy,” Spotify CEO Daniel Ek told Reuters. “We’re not concerned long term, but it’s definitely impacting us in short term, and it contributed to the gross margin hit that we had this quarter, too.”
The number of monthly active users rose to 456 million in the third quarter, an addition of 23 million users in three months that beat Spotify’s own guidance and analysts’ forecasts of 448.6 million.
Premium subscribers, who account for most of the company’s revenue, grew 13% to 195 million, topping analyst estimates of 194 million.
Spotify’s ad-supported income grew 19% in the quarter to 385 million euros ($383.7 million), with double-digit growth across all regions except Europe, where Spotify said it saw the impact of challenging economic conditions in the region.
Investors have been concerned that the global economy, which is still reeling from the lingering effects of the pandemic, Russia’s invasion of the Ukraine, rising interest rates and fear of a global recession, would crimp consumer spending on entertainment.
Spotify’s stock has fallen 58.5% this year, reflecting market concerns.
Revenue for the third quarter reached 3 billion euros ($3 billion), up 21% from the same time last year and consistent with analyst estimates of 3 billion euros ($3 billion), according to IBES data from Refinitiv.
Gross margin dropped to 24.7%, below the company’s expectations, citing some softness in the ad market and a large publishing contract outside of the U.S.
Spotify posed a quarterly operating loss of 228 million ($227.3 million) in the quarter, higher than analyst projections of 168.6 million euros ($167.9 million).
The company estimated it would reach 479 million monthly active users in the forth quarter, an addition of 23 million over the last three months of the year. It predicted it would add 7 million premium subscribers, bringing the total number to 202 million.
Revenue for the fourth quarter would reach 3.2 billion euros ($3.18 billion) with an operating loss of 300 million euros ($298.8 million).
(Reporting by Dawn Chmielewski in Los Angeles; Editing by David Gregorio)
