Spotify Adds Users, Reports Loss After Big Investments in Podcasts

Spotify reported 489 million monthly active users, up 20% from a year earlier and besting the company’s guidance. The company highlighted growth in India and Indonesia as a result of marketing campaigns, as well as strength from its eighth annual Wrapped campaign and the holiday season.  

Paying subscribers, Spotify’s most lucrative type of customer, rose 14% to 205 million, also beating the company’s expectations, due to promotions and household plans.

Just before the quarter started, Spotify introduced its expansion into audiobooks, another move in the company’s evolution from a pure-play music service to a more diversified audio business. Users can now purchase and listen to a catalog of more than 300,000 titles from independent authors and major publishers on a pay-per-download basis. 

Chief Executive

Daniel Ek

has said

Apple Inc.’s

App Store policies have hampered the rollout of its audiobook offerings. Spotify has directed users to make purchases through a web browser instead of inside the app. While it is a more cumbersome user experience, the move means Apple won’t be taking up to a 30% commission for downloads. Spotify has been fighting Apple over its in-app purchase policies for years.

Free cash flow, a measure of the cash a company generates from operations and viewed by many investors as a proxy for performance, was negative €73 million—equivalent to about negative $79 million—compared with €103 million a year earlier and €35 million in the prior quarter. The company, which had warned it would likely be negative for the period due to the timing of certain payments, said the metric was positive for the full year, a trend it expects to continue on a full-year basis going forward.

Spotify posted a loss of €270 million, or €1.40 a share, compared with a loss of €39 million, or 21 euro cents a share, a year earlier. It says operating expenses were affected by head-count growth from its ad sales team, platform investment and acquisitions, as well as overall higher advertising expenses. 

For years, executives have said the company will give priority to investment over profits as it works to attract users around the world and expand into new forms of audio. But last fall the company indicated that profitability is expected to improve this year as it moves on from a period of heavy investment. 

On Tuesday the company called 2022 an investment year and said moving forward it expects more companywide efficiencies and that revenue will begin to grow faster than operating expenses.

Last week, Spotify laid off about 600 employees, or roughly 6% of its workforce, as part of broader cost-cutting measures after the streaming company went on a spending spree during the pandemic.

Average revenue per user for the subscription business in the quarter climbed 3% to €4.55 but fell 1% on a constant currency basis. The metric has been pressured as the company attracts new subscribers through discounted plans and lower prices in newer markets. Spotify began raising the price of its family plan over a year ago in dozens of markets, including the U.S., which has helped increase revenue on a per-user basis.

In October, Mr. Ek said subscribers can expect price increases for the service sometime in 2023, a move that would follow increases for the cost of music services from Apple and

Amazon.com Inc.

The premium service in the U.S. has cost $9.99 since Spotify was launched there in 2011. Spotify has implemented dozens of price increases in markets around the world without losing customers, Mr. Ek has said. 

Subscriptions, the largest top-line contributor, rose 18% to €2.72 billion. Ad revenue rose 14% to €449 million. Ad revenue, which has become a particular growth area for Spotify as it expands its podcast business, made up 14% of total revenue for the period.

For the December quarter, revenue rose 18% to €3.17 billion, slightly below the company’s expectations for €3.2 billion. Spotify said revenue growth was ahead of expectations excluding the impact of foreign exchange.

For the current period, the company forecast monthly active users of 500 million and premium subscribers of 207 million. It said it expects revenue to be €3.1 billion.

News Corp’s Dow Jones & Co., publisher of The Wall Street Journal, has a content partnership with Spotify’s Gimlet Media unit.

Write to Anne Steele at [email protected]