Spotify says it had 422 million total monthly active users during the first quarter and by the end of the first quarter it had four million podcasts on the platform. Spotify reported first-quarter revenue of $2.82 billion, with the first quarter being its best yet for ad revenue. But the podcast industry is still in the red. Here are seven takeaways from Spotify’s latest update for investors –
The number of active users increases, with an asterisk
Spotify claims to have had 422 million total monthly active users in the first quarter. This is a 19% year-over-year increase and up from 406 million in the fourth quarter. But he estimates around three million of those additions stemmed from a service outage in March that caused users to be unintentionally logged out until they created new accounts. Without that, Spotify estimates it had 419 million active users in the quarter, with the biggest gains seen in Latin America, Indonesia, Brazil and Mexico. The figures also indicate a limited impact of the Joe Rogan controversy during the first months of the year.
“I’m very pleased with the acceleration we’re seeing heading into the second quarter,” said CEO Daniel Ek, who noted that the first quarter typically sees fewer new user activations. “Despite this, we delivered strong results,” he told analysts on Wednesday.
Four million podcasts
At the end of the first quarter, Spotify says it had four million podcasts on the platform, up from 3.6 million at the end of the fourth quarter. This includes over 1,150 original shows on the platform. More importantly, it reports that the growth in the number of monthly active users who interact with podcast content has increased by double digits compared to a year ago and that the share of podcasts in overall consumption hours on our platform reached another all-time high – but it didn’t share any specific numbers. Spotify says new podcasts have seen the strongest growth in Latin America, with more than 85% of new podcast creation on its Anchor platform.
“Our podcast business continues to exceed even our own lofty expectations, with podcast’s share of overall consumption hours hitting another all-time high last quarter,” Ek said. “Global podcast consumption is strong, and it’s getting stickier as we innovate with features like video.”
Podcasts are still losing money
Spotify’s investment in podcasting has not only weighed on its margins, but the segment is also operating in the red. CFO Paul Vogel told analysts this will likely continue until 2022, but in the longer term he believes podcasting will become profitable for Spotify.
Ek said he feels “really good” about investing in podcasts and the long-term implications it will have for the business. “There is a huge appetite among existing and new Spotify users to consume podcast content,” he said. Ek also sees a strong market for its podcast services like Anchor and Megaphone, as well as growing demand among ad buyers. “When we added podcasts, we became a much stronger proposition for advertisers, increasing the size of our orders in both music and podcasting,” he said.
Revenue grows 24% with ad revenue up 31%
Spotify reports that it earned $2.82 billion in first-quarter revenue, a 24% year-over-year increase. Although the first quarter is usually a light quarter for advertising, Spotify says the first quarter was its biggest ever for advertising revenue. It grew 31% to $297 million, with advertising accounting for 11% of the company’s total revenue.
CPMs grew in double digits on its music service, but the big growth story was on the podcast side of the business where the Spotify Audience Network gained traction. Even though ads are on the rise, most of Spotify’s revenue comes from subscriptions. This side of the business grew 23% to $2.5 billion in the first quarter.
Ek said that their recent offers to buy audio attribution companies Podsights and Chartable are already impacting advertiser renewal rates and transaction sizes. But Vogel also acknowledged on the conference call that the war in Ukraine had slightly reduced their ad growth.
We are not Netflix
Investors shocked by a sharp drop in Netflix subscribers wondered if the same subscription headwinds would be facing Spotify. The company says it grew its subscriber count by 15% year-over-year in the first quarter to 182 subscribers from 180 million in the fourth quarter. Although this was slightly lower than Spotify had expected, it indicates that if the impact of the exit from the Russian market and the 1.5 million subscribers it had, its growth would have been greater than expected. It indicates that growth has been strongest in Latin America and Europe.
“A lot of people lump us together with Netflix, but aside from being media companies and primarily subscription revenue companies, that’s where the similarities end,” Ek said. “We are a platform, not Netflix. With Spotify we have a free service, not Netflix. We have hundreds of millions of content, Netflix only creates its own original content. So they are very different companies. We really feel good in the business that we are and we think audio is an overlooked market and it’s going to be very important.
Podcast subscriptions are on the rise
Outlook Q2 Tank Stock
Spotify estimates it will have 428 million total monthly active users in the current quarter with 187 million subscribers by the end of June. The closure of Russian operations is expected to further slow its growth rate. While exchange rates will dampen revenue, he still expects to see $2.9 billion in total revenue in the quarter. This weaker-than-expected guidance drove Spotify shares lower. It fell 11% on Wednesday during midday trading in New York.