SWEDEN: Spotify Technology reported its first annual profit on Tuesday and forecast quarterly earnings above Wall Street estimates, as the Swedish audio-streaming giant benefits from strong user growth, price hikes and a cost-cutting drive.
Shares of the company, which competes with Apple and Amazon’s music streaming offerings, rose nearly 10 per cent in early trading.
The results mark the culmination of months-long efforts by Spotify to boost profitability through price increases and cost cuts, including layoffs, reduced marketing spend and a pullback from hefty investments in podcasting and audio.
Spotify said it expects operating income of 548 million euros ($566.2 million) in the current quarter, above analysts’ estimate of 450.6 million euros, according to LSEG-compiled data.
Its quarterly monthly active users (MAU) forecast of 678 million was in line with an estimate of 679.4 million, while its prediction for a 2 million increase in premium subscribers to 265 million was above a Visible Alpha estimate of 263.2 million.
CEO Daniel Ek said in an interview that the company plans to experiment with more personalized offerings to attract subscribers, including a new premium tier called “superfans of music” that would come with additional features.
“For the next step in the music industry’s growth, we’re going to have not just one product for all people, but actually different types of products, different types of affinities, and one of those products is superfans of music,” he said.
Spotify has also sharpened its focus on video music and podcast offerings to attract users. It has in recent months extended a test rollout of its music videos to new markets and unveiled new features that help improve user engagement for content creators.
“The streamer put significant investment and attention toward visual and video content — neither of which are what Spotify is known for — and its effort to rebrand away from being an audio-only platform seems to be working,” said eMarketer analyst Grace Harmon.
Fourth-quarter revenue rose 16 per cent to 4.24 billion euros, beating an estimate of 4.19 billion euros, driven by subscriber gains and a 5 per cent increase in average revenue per user. Spotify hiked prices in the US in June last year.
Gross profit jumped 40 per cent thanks to a 16 per cent decline in operating expenses. Gross profit margin increased to 32.2 per cent from 31.1 per cent in the prior quarter.