Earnings

Spotify earnings: The lure of a free product

Spotify added more subscribers than expected, beating analysts' profit estimates

Spotify
Spotify
  • Q1 revenue: $2.02 billion (+22% YoY, vs. $2.03 billion expected)
  • Q1 earnings: $1.09 million (up from -$141 million Q1 2019, above expectations)
  • Full-year guidance: The company reiterated full-year guidance, but reduced revenue forecasts from $8.84 - 9.28 billion to $8.37 - 8.81 billion.

The big number: Spotify says it now has 130 million premium subscribers, a 31% jump from a year ago and above expectations of 128.6 million. Guidance for next quarter was pretty much in line with expectations, though: Spotify said it expects 133 million to 138 million vs. the 136.5 million analysts expect.

People are talking: "Today, 19% of our Total MAUs engage with podcast content, up from 16% in Q4 2019." — Spotify told investors that its investment in podcast production seems to be paying off.

Opportunities: Spotify thinks its free tier presents an opportunity in a downturn. CEO Daniel Ek said it allows the company to better compete against services like Apple Music, which are paid-only, at a time when consumer finances are under pressure. "60% of our paid subscribers come from our free tier," Ek said on the earnings call, so the company could see long-term benefits from that. However, the company cited a slowdown in advertising as a reason it reduced revenue expectations, although it said currency fluctuations were having a greater impact.

Threats: Churn "ticked up just a teeny bit sequentially" last quarter, Ek said, and that's a trend that could continue as the economy worsens. Still, Spotify stressed the improvement in churn rates year-on-year, and said 80% of those who said they canceled due to COVID told the company they're likely to return "once the economic situation improves."

The power struggle: Ek made it very clear that he doesn't view Apple Music as his major competitor, instead saying that Spotify's going after the billions of radio listeners that don't use any streaming service — some of whom, no longer in their cars, may now be trying Spotify for the first time. "Linear and physical will move to on demand, and that trend line will be accelerated due to this pandemic as more and more people are learning new habits," he said.

 Shakeel Hashim

Shakeel Hashim ( @shakeelhashim) is a growth manager at Protocol, based in London. He was previously an analyst at Finimize covering business and economics, and a digital journalist at News UK. His writing has appeared in The Economist and its book, Uncommon Knowledge.

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Power

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The creators of Splitgate had a problem. Their new free-to-play video game, a take on the legendary arena shooter Halo with a teleportation twist borrowed from Valve's Portal, was gaining steam during its open beta period in July. But it was happening too quickly.

Splitgate was growing so fast and unexpectedly that the entire game was starting to break, as the servers supporting the game began to, figuratively speaking, melt down. The game went from fewer than 1,000 people playing it at any given moment in time to suddenly having tens of thousands of concurrent players. Then it grew to hundreds of thousands of players, all trying to log in and play at once across PlayStation, Xbox and PC.

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Why Twitch’s 'hate raid' lawsuit isn’t just about Twitch

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