By Anne Steele
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 30, 2020).
Spotify Technology SA said customers' overall time spent
listening to the music-streaming service returned to prepandemic
levels and its advertising business is showing signs of recovery as
habits began to normalize in the second quarter after an initial
upset brought on by Covid-19.
The Stockholm-based company deepened its loss in the three-month
period ended June 30, as its recent stock run-up came with
higher-than-expected payroll taxes that offset strong user
growth.
The global health crisis began to drag on the business in the
first quarter, with declines in daily active users and overall
listening. However, by the end of June all regions had come back
except for Latin America, where cases have risen sharply.
"The big news here is that there isn't really a lot of big
news," said Chief Executive Daniel Ek in an interview. "We're lucky
in that we have a business where there's been a macro tailwind
toward digital business."
In-car listening by the end of the quarter was less than 10%
below pre-Covid-19 levels, an improvement from a 50% decline that
had dragged through April. Meanwhile, Spotify has seen at-home
listening on shared devices like smart speakers and smart TVs rise
dramatically amid the pandemic.
"That had never been a forte for Spotify before, we were more of
a mobile play," said Mr. Ek. "That trend has been strong for
us."
Finance chief Paul Vogel said the service added more users and
subscribers in the first half of this year than the first half of
last year.
"We feel really good about how we're performing," he said.
At the end of the second quarter Spotify had 299 million monthly
active users and 138 million paying subscribers, its most lucrative
type of customer, with both coming in at the top of its guidance.
Growth in North America was stronger than the company expected,
more than making up for softness in Latin America and other
emerging markets that registered upticks in subscriber
cancellations and payment failures.
During the quarter, average revenue per user for the
subscription business slipped 9% to EUR4.41 ($5.17). The decline
stemmed mostly from new subscribers coming in via discounted plans
through family and student accounts as well as lower pricing power
in new international markets.
Spotify's revenue from subscriptions climbed 17% to EUR1.76
billion. Ad-supported revenue -- which had been on a double-digit
rise before the pandemic -- slid 21% to EUR131 million. The company
said ad sales slowed amid the pandemic but started to improve in
June, and podcast advertising performed better than anticipated.
Advertising is a relatively small part of Spotify's business,
accounting for 10% or less of overall revenue, but has been a
growth area over the past year, as the company has expanded its
podcast business.
The company said 21% of its monthly active users now listen to
podcasts, up from 19% in the previous quarter, while overall
consumption of podcasts more than doubled.
In all for the period, Spotify posted a loss of EUR356 million,
or EUR1.91 a share, versus a loss of EUR76 million, or 42 European
cents a share, in the year-earlier quarter. A recent spate of deals
has run the company's stock up more than 70% since the end of May,
when comedian Joe Rogan's podcast was announced to be coming
exclusively to Spotify. The deeper loss was owing to the taxes the
company accrues on its employees in Sweden -- accounting for more
than one-third of its workforce -- as determined by the stock price
at the end of each quarter.
During the quarter, the company also announced exclusive
podcasting deals with Warner Bros.'s DC superhero brand and Kim
Kardashian. The exclusivity, Mr. Ek said on an investor call, is a
key component of Spotify's strategy, as it sees podcasts attract
engaged listeners who also stream more music.
"What we're seeing here is the beginning of a flywheel. With
every piece of content we're adding and successfully serving to
users we're creating more engagement and that leads to lower
churn," he said. "These users, when they find great shows, are
sharing them on social media and creating this virtuous cycle."
Last week, Spotify struck a new licensing agreement with Vivendi
SA's Universal Music Group that signs the largest music company
onto its "two-sided marketplace" for selling marketing and data
back to labels.
Also this month, Spotify launched in Russia and a dozen other
European markets. Mr. Ek said the service had a bigger launch there
than it had in India, where it added more than one million users in
the first week.
Free cash flow -- a measure of the cash a company generates from
operations and a gauge that many investors view as a proxy for
performance -- was EUR27 million, down from EUR50 million a year
earlier.
Revenue rose 13% to EUR1.89 billion, in line with guidance.
For the current quarter, the company forecast monthly active
users to grow to between 312 million and 317 million, and for
premium subscribers to rise to between 140 million and 144 million.
Revenue is expected to come in between EUR1.85 billion and EUR2.05
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 Anne.Steele@wsj.com
(END) Dow Jones Newswires
July 30, 2020 02:47 ET (06:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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