Spotify Finally Readies an IPO...That’s Not an IPO

Music-streaming service considers a direct listing, bypassing the typical public-offering script

April 6, 2017

Music-streaming service Spotify AB is readying an initial public offering that is expected by year-end. The rub is this: It may not really be an IPO.

Spotify is seriously considering a direct listing, in which the company would simply register its shares on a public exchange and let them trade freely, according to people familiar with the matter. The company wouldn’t raise any new money or use underwriters to place new blocks of stock.

That would mark a departure from the typical IPO, in which new investors buy shares from the company or its early investors, or both, the night before they start trading. The initial price is set by underwriters following extensive meetings with potential new investors.

In a direct listing, investors purchase shares in the open market after they are listed. The price is set organically based on supply and demand. Spotify, which has raised more than $1 billion in equity, was last valued privately at $8.5 billion in June 2015. The Swedish company is targeting a public valuation of more than $10 billion, the people said. The 10-year-old company may list its shares on a U.S. exchange as early as September.

If the company does list this way successfully, it could create a path for other highly valued technology companies with ready access to cash to quickly move into the public domain without using the typical IPO script.

Spotify last year issued a $1 billion convertible bond to parties including TPG and Dragoneer Investment Group. The interest rate of 5% increases 1 percentage point every six months until the company goes public, giving it a potential incentive to pursue a listing sooner rather than later, The Wall Street Journal has reported. Having a public stock would also give Spotify’s investors and employees the opportunity to cash in their shares.

By pursuing a direct listing, the company could save on hefty underwriting fees and avoid dilution that comes with issuing new shares, according to some of the people familiar with the matter. Its early investors would be subject to less stringent lockups governing the sale of insiders’ shares, those people said. What’s more, the company could avoid the first-day trading pop that characterizes many IPOs shepherded by underwriters. They are good for some investors but also indicate a company left money on the table.

There are risks to this approach, whose consideration by Spotify was earlier reported by Mergermarket. With market forces determining the share price from the outset, the company’s public debut could be more volatile and unpredictable. Also missing would be the large blocks of stock underwriters typically allocate to investors they believe will hold the shares for the long term and promote trading stability.

Spotify, which recently hired banks to advise on the process, could still choose to move forward with a more-traditional IPO, one person said.

Spotify makes confidential filing for U.S. IPO: source

January 3, 2018

NEW YORK/SAN FRANCISCO (Reuters) - Music streaming service Spotify has filed confidentially with U.S. regulators for an initial public offering and is targeting a direct listing in the first half of 2018 that would allow some longtime investors to cash out, a source familiar with the matter said on Wednesday.

If Spotify, which was valued at as much as $19 billion last year, goes ahead with its plans, it would be the first major company to carry out a direct listing, an unconventional way to pursue an IPO without raising new capital.

A direct listing mainly eliminates the need for a Wall Street bank or broker to underwrite an IPO along with many associated fees and could change the way companies approach selling shares to the public.

The confidential filing was initially reported by news outlet Axios.

The U.S. Securities and Exchange Commission now allows all companies, regardless of revenue, to file a draft IPO registration statement confidentially before they unveil their financials.

Spotify is the biggest global music streaming company and counts Apple Inc and Amazon.com Inc as its main rivals. Reuters had previously reported Spotify was aiming to file for an IPO in late 2017 and list with the New York Stock Exchange early this year.

Spotify declined to comment.

Spotify was sued by Wixen Music Publishing Inc last week for allegedly using thousands of songs without a license and compensation to the music publisher. Wixen is seeking damages worth at least $1.6 billion.

Spotify intends to proceed with a U.S. direct listing in the first half of 2018 despite the lawsuit, according to a source familiar with the matter. Goldman Sachs, Morgan Stanley and Allen & Co are helping arrange the listing, the source added.

The lawsuit is unlikely to have a major impact on Spotify’s IPO, said Luke DeMarte, a copyright lawyer at Michael Best & Friedrich not involved. DeMarte said he expects Wixen to settle its case for far less than the damages it is seeking and that it is unlikely any of the publisher lawsuits go to trial.

“It is not in Wixen’s interests or its constituents’ interests to stop Spotify or really inflict harm on them because it is the main game in town for streaming,” DeMarte said.

The company said in June it had more than 140 million active users while listing more than 30 million songs. Spotify last reported more than 60 million paid users, twice that of Apple Music, its closest rival.

Spotify Kicks Off Its Unusual IPO

Shares of the music-streaming service could begin trading publicly by end of March

Feb. 28, 2018

Music-streaming company Spotify Technology SA cemented plans for its unusual initial public offering while revealing the financial particulars of a fast-growing company that upended the music industry and revolutionized how consumers listen—but spent heavily to do so.

Stockholm-based Spotify filed to go public Wednesday by submitting a so-called F-1 to the Securities and Exchange Commission that contains years of data and details about how the 10-year-old company will launch its IPO.

The filing showed that the company’s revenue is growing sharply but its losses are ballooning. It posted €4.1 billion ($5.01 billion) of revenue in 2017, up nearly 39% from the prior year. The company, which has yet to turn a profit, posted a loss of €1.24 billion ($1.51 billion) in 2017, up from €539 million ($657 million) in the prior year and €230 million ($280 million) in 2015.

Its revenue growth has slowed recently; it was 52% in 2016.

Spotify’s debut will be one of the biggest tech listings in recent years. Based on private transactions in February, Spotify’s value touched $22.6 billion.

A standard IPO timeline indicates Spotify’s shares could begin trading publicly on the New York Stock Exchange as soon as the week of March 26, after a period when the company pitches itself to potential investors.

Unlike a traditional IPO, no new shares will be offered when Spotify goes public. Instead, through a process known as a direct listing, Spotify will simply float its existing shares and let the market find a price without banks serving as underwriters to set pricing, allocate shares to investors and backstop trading, as is typical in a regular listing. There is little precedent for the kind of direct listing Spotify is attempting.

Spotify’s listing will likely be coveted by investors who are seeking high growth that often comes with big-name, high-valued technology IPOs, which have been rare of late. Most of the startups with the highest valuations—including ride-hailing service Uber Technologies Inc. and home-rental company Airbnb Inc.—have put off going public as they still have access to ample capital from big investors.

Launched in Sweden in 2008, Spotify brought its service to the U.S. in 2011, stoking a disruption—and recovery—of the music industry. In a market depleted by piracy and file sharing, Spotify introduced a massive library of songs available to users free in exchange for listening to ads or on-demand for $9.99 a month. The service boasts 35 million songs, according to the filing, and said it has 159 million monthly active users. As of Dec. 31, it had 71 million paying subscribers.

Paid subscriptions, up 61%, were the largest source of record-company revenue in the U.S. in the first half of 2017, according to the Recording Industry Association of America.

Still, music streaming has yet to prove itself as a viable business, as companies operating such services struggle to reach profitability. As the services grow, active users and paid subscribers are the most closely watched metrics. Spotify has said it believes it can become profitable once it has amassed sufficient users, without specifying what that level would be.

Figures released by the company indicated that 44% of users in 2017 were paying subscribers, up from 31% in 2015. Subscribers generate much more revenue than users who listen via the company’s ad-supported free option.

But Spotify also said that those paying subscribers have been generating a shrinking amount of revenue, on average. A “premium” user was worth an average €5.24 a month in 2017, down from €7.06 in 2015. The company attributed that decline to the introduction of discounts for students and families, which it said were important for attracting and retaining subscribers.

Meanwhile, Apple Inc.’s music streaming service, which only offers a subscription model, has been adding subscribers in the U.S. at a faster rate than Spotify.

Spotify remains the global leader, with nearly twice as many paid subscribers as No. 2 Apple Music. Tech giants Amazon.com Inc. and Alphabet Inc.’s YouTube also operate paid music-streaming services, as does Internet-radio company Pandora Media Inc.

Spotify, in its filing, indicated how the price will be decided when its shares open for trading. While Spotify’s advisers won’t build a book of investors or choose a price, the company said Morgan Stanley will consult with so-called designated market maker firms to set the opening public price of Spotify shares on the New York Stock Exchange, which will be determined by the buy-and-sell orders from investors

Despite a pushback against dual-class shares from index funds and the SEC in recent months, Spotify will have a dual-class structure that gives the founders, Daniel Ek and Martin Lorentzon, 80.4% of the voting control. Mr. Ek, the company’s chief executive, recently held about 25.7% of its stock, while Mr. Lorentzon held roughly 13.2%.

Music streaming service Spotify files to go public, lost $1.5 billion last year

Feb. 28, 2018

Streaming service Spotify announced Wednesday its plan to go public.

The company will begin trading on the New York Stock Exchange under the ticker name SPOT. According to the company, shares have traded as high as $132.50 on private markets, which would give the company a valuation over $23 billion based on ordinary shares outstanding as of February 22.

Spotify is the leader in streaming music services globally, with the company reporting 71 million paying subscribers and more than 159 million monthly active listeners (MAUs) as of December 2017. It is available in 61 countries and territories. Its closest competitor, Apple Music, is far behind at 36 million subscribers.

The company reported revenue of $2.37 billion in 2015, $3.6 billion in 2016 and $4.99 billion in 2017, according to its F1. (This is based on current euro to dollar conversion value.) It said paid subscribers are growing at a rate of 46 percent year-over-year, while MAUs are increasing at 29 percent year-over-year.

The company posted a loss of $1.5 billion in 2017, $1 billion of which was from a non-recurring expense due to convertible notes from a transaction with Tencent in December 2017. It had an operating loss of $461.3 million last year, and $425.9 million in 2016.

As Spotify prepares to go public, there's no obvious solution to its shaky business model

Feb. 28, 2018

As the most popular and celebrated music streaming platform, the company has its share of boosters. Still, as it prepares to join public markets, albeit in a somewhat unusual form, it faces the same problem other internet companies have faced before — a balance sheet that's deeply in the red, and a business model that doesn't show an obvious way to profitability.

Perhaps just as important, it will be going up against deep pocketed competitors like Apple Music and Amazon Music, both of which can afford to operate music services forever without making a dime.

Still, the company has some things going for it.

The good

Right now, Spotify is the clear industry leader in the U.S. among streaming music services, with the company reporting 71 million paying subscribers as of December, and more than 159 million active listeners. Its closest competitor, Apple Music, is far behind at 36 million subscribers.

"They've got a strong subscriber acquisition funnel in the U.S.," MKM Partners managing director Rob Sanderson said. "They used to be the juggernaut, but still even with Apple having all the resources with the world to play with the space, [Apple hasn't] been able to bring it together and execute on that."

The bad

Although the company has been able to negotiate better licensing deals with record labels, those are still very costly. Rights holders — labels, songwriters and publishers — get payouts that are tied to a portion of revenue, and as of December 2017 the company said it has paid out $9.76 billion in royalties to "artists, music labels and publishers."

If that seems like a lot, publishing companies and songwriters don't think so. They aren't pleased with the current payment split, saying basing royalties on revenue doesn't make sense. Many tech companies look at their music divisions as a way to boost revenue for their main business, and aren't concerned about turning a profit there, the publishers and songwriters argue.

In late January, U.S. copyright royalty judges — known as the Copyright Royalty Board (CRB) — sided in favor of publishers and songwriters and agreed to boost the rate for interactive streaming by more than 43 percent over the next five years.

Some have also taken issues with how Spotify licenses music. A $1.6 billion lawsuit from Wixen Music Publishing, for example, claims the company was using thousands of its songs illegally. The lawsuit is still pending in a California federal court.

There's also a concern about consumer overload. With so many streaming services, many analysts believe there's a limit to what consumers' budgets — and attentions — can handle.

According to an August 2017 Morning Consult poll, more than half of millennials surveyed said there are too many streaming services out there already. A recent online survey of more than 1,100 people by SyFy found more than six out of 10 subscribe to two or more streaming services.

"There is a limit to what people will spend as more subscription services emerge, whether they are video, audio or media like the New York Times or whatnot," said eMarketer senior analyst Paul Verna. "As more of them proliferate, they push up against limits people have on their budgets."

Spotify will start trading April 3

Spotify's stock will start trading on April 3 and the company will provide full-year financial guidance on March 26, executives said on Thursday.

Co-founder Daniel Ek told investors that the company was focused on transparency and that his plan for the future focused on: upgrading free users to premium subscribers, reaching scale on many platforms (especially smartphones, speakers and cars), and personalized data from users, who spend about 49 minutes a day on the platform on average.

Spotify's revelations come ahead of its non-traditional public listing. The music-streaming company is expected to forgo IPO traditions like underwriters and a lock-up period when it lists on the New York Stock Exchange under the ticker name SPOT.

Spotify’s Numbers Show Growth, and Maybe a Path to Profits

March 26, 2018

Spotify Technology SA is adding users rapidly and moving into new markets around the world, but it is unclear how soon its business will be in the black -- something the music-streaming service says isn’t a problem as it prioritizes growth over profit.

The Swedish company is set to make its debut next Tuesday on the New York Stock Exchange, in an unusual direct listing that Wall Street is closely watching.

Spotify has reported net losses every year since it started in 2008, but the company says its growth-oriented strategy will make the business more valuable in the long run.




On an operating basis, the company has been edging toward profitability since 2016, when its free cash flow -- a measure of the cash a company generates that some investors view as a good proxy for company performance -- turned positive, according to documents filed with the Securities and Exchange Commission. Last year, Spotify generated €109 million ($134.7 million) in free cash flow.

“Becoming the world’s largest music-streaming subscription service has been expensive,” said finance chief Barry McCarthy during the company’s first investor presentation earlier this month. “But the trend toward profitability is clearly apparent.”

On Monday morning, Spotify gave its outlook for 2018, outlining expectations to increase revenue by as much as 30%, and to boost premium subscribers by as much as 36% year over year. Those forecasts represent sharp but still slowing growth.

Spotify remains the global leader in a market that is growing. U.S. consumer spending on music-streaming services is likely to jump 29% to $6.6 billion in 2018, said the Consumer Technology Association, an industry group.

The most closely watched metric from music-streaming services has been subscriptions, which generate more revenue through fewer users than ad-supported tiers of service.

Spotify says it has 157 million monthly active users in 61 countries, 71 million of those in its premium paid subscription tier, “which we believe is nearly double the scale of our closest competitor, Apple Music,” the company said in a filing. But that 71 million includes an undisclosed number of people still in a free trial period.

Apple Music doesn’t report trial users in its subscription number, so the gap between the No. 1 and No. 2 services is narrower than it appears. Apple’s services chief, Eddy Cue, earlier this month said that Apple Music has 38 million subscribers, plus another eight million users in free-trial mode. Spotify gives users the option of not paying for the service indefinitely, listening to ads in lieu of a monthly fee. Apple has no such permanent free option.

Spotify also sees its premium subscriber growth slowing down slightly. The company said it expects to end 2018 with 92 million to 96 million premium subscribers, which would mark growth between 30% and 35%, below the 46% year-over-year growth it reported between 2016 and 2017.

Though 90% of Spotify’s revenue comes from subscriptions, the company says the ad-supported offering acts as a funnel for paying subscribers. It says the more free users engage, the more likely they are to eventually subscribe. Spotify said as of December 2017, 50% of monthly active users became premium subscribers within 36 months. And the proportion of users paying for subscriptions has increased to 44% in 2017 from 31% in 2015.

Individually, those paying subscribers have been generating a shrinking amount of revenue -- an average €5.24 a month in the final quarter of 2017, down from €7.06 in 2015. That is because the company has introduced discounted plans for families and students, which it says help attract and retain subscribers.

Such plans have helped Spotify hold on to more customers, with the share of subscribers who discontinue their subscription down to 5.1% in the last quarter of 2017, versus 6% a year earlier and 7.5% the year before.

Still, while getting bigger and gaining more leverage might seem better for Spotify, its costs do follow its growth closely; the service must pay record companies and music publishers every time a song is streamed. Those royalty payments make turning a profit a tough proposition. (This model differs from streaming giant Netflix Inc., which owns or pays for content once and then capitalizes the more it is streamed.)

Under its latest agreements with record companies, Spotify will see lower royalty rates as it attains a certain number of subscribers. Because neither the subscriber targets nor the royalty rates have been publicly disclosed, it is difficult to know exactly when the company may attain profitability.

During Spotify’s investor presentation, Mr. McCarthy, who formerly held the same position at Netflix, indicated Spotify is betting on keeping its top-dog position, with the idea that the longer users remain subscribers, the more profitable they become.

On Monday, Spotify helped make its case by forecasting growing gross margins and climbing revenue. It sees margins ranging from 23% to 25%, up from 21% in 2017 and 14% in 2016. Revenue is expected to land in a range of €4.9 billion to €5.3 billion, up from €4.09 billion in 2017.

Spotify on Track for Third-Largest Tech IPO Ever

April 3, 2018

Spotify Technology SA roared onto the public market Tuesday as the music-streaming giant pulled off an unusual method of going public.

The stock opened at $165.90, giving it an opening value of $29.55 billion. That would make Spotify the third-largest U.S.-listed tech IPO on record, according to Dealogic, trailing only Alibaba Group Holding Ltd., which ended its first day of trading worth $233.89 billion, and Facebook Inc. at $81.74 billion.

The stock, which has traded between $159.91 and $169 Tuesday, recently declined 3% from its opening price to $160.92 in high-volume trading, but it still sits well above earlier price indications and private-market trading.

Because of its nontraditional IPO route, shares of the Swedish company didn’t get an official IPO price—rather, the New York Stock Exchange published a so-called reference price of $132 for them Monday night.

Pretrading indications for the stock, which now trades on the NYSE under the symbol SPOT, quickly blew past that Tuesday, starting at $145 to $155 and then rising several times, to as high as $170. In private market trading, the shares had been on the rise, recently jumping as high as $137.50, according to people familiar with the trades.

Spotify stock falls more than 7% after reporting earnings for the first time

Spotify shares fell more than 7 percent after-hours after reporting its first quarterly earnings as a public company.

The company posted a total user base of 170 million, with 75 million paid subscribers, in line with expectations. But the company is still losing money, as it invests in research and development staffers, which made up almost half of new hires during the quarter. It also gave guidance for the current quarter that was slightly light.

Spotify's 2017 paid subscriber base of 71 million was enough to ferry it through a solid public offering last month, despite the unconventional process, where no banks underwrote the offering and no price was set ahead of the debut.

Spotify Reports Increase in Subscribers Amid Promotions

Music-streaming company posts a loss of €394 million ($461 million), wider than its €188 million loss a year ago

July 26, 2018 8:14 a.m. ET

Spotify Technology SA’s subscriptions surged 40% thanks to promotions during the most recent quarter, though the music-streaming company tempered the high end of its guidance for the year as it posted a wider loss.

Spotify said it now has 83 million subscribers after adding a net 8 million of its most lucrative type of customer during the quarter. Including the many more customers of its free, ad-supported tier, the service altogether has 180 million monthly active users. Both results hit the top of the company’s guidance.

The company’s biannual discounted premium service campaign and extension of its Hulu bundle offering to premium subscribers—previously only offered to students—helped drive subscription growth in the quarter. The promotional activity also dragged average revenue per user down 12% to €4.89 ($5.72) — a seasonal impact the company said it expects to continue.

In all for its second quarter reported as a public company, Spotify posted a loss of €394 million, or €2.20 a share, wider than its €188 million, or €1.24 a share, loss in the same period a year ago. The company booked a €30 million cash expense related to its direct listing in April during the quarter.

Analysts polled by Thomson Reuters were expecting a 68 euro cent loss.

The company, which has reported net losses every year since it launched in 2008, has said it is prioritizing growth over profit—a strategy executives believe will make the business more valuable long-term.

Revenue grew 26% to €1.27 billion, near the high end of the company’s guidance, and in line with street expectations.

Free cash flow—a measure of the cash a company generates that many investors view as a good proxy for performance—was €18 million in the quarter, down from €59 million a year earlier and €74 million in the previous quarter.

For the current quarter ending in September, Spotify said it expects to hit 85 million to 88 million premium subscribers and 188 million to 193 million active users. The company guided for revenue to grow to €1.2 billion to €1.4 billion.

Spotify also issued guidance for the fourth quarter, forecasting its subscriber count to hit 93 million to 97 million and active users to reach 199 million to 207 million. That is just below the up to 96 million subscribers and 208 million active users the company had previously forecast.

Spotify Attributes First-Ever Quarterly Profit to One-Time Tax Event

Nov. 1, 2018 6:39 a.m. ET

Spotify Technology SA reported its first-ever profit in the latest quarter, thanks to its investment in Chinese music-streaming service Tencent Music. But the company will likely return to a loss this quarter and damped its subscriber-growth guidance for the period.

The company reported 87 million subscribers after adding a net four million during the quarter ended Sept. 30. That helped bring Spotify’s total monthly active user count—which includes listeners of its free, ad-supported version—to 191 million. Results were on the high end of the company’s guidance.

Overall for the period, Spotify posted a profit of €43 million ($48.7 million), or 23 European cents a share, compared with its loss of €278 million, or €1.84 a share, in the year-earlier quarter. The swing to profit was due to a €125 million tax benefit related to a change in the value of its investment in China’s Tencent Music, Spotify said. The two companies announced a stake swap in December 2017; Tencent Music filed to go public in early October this year.

Spotify previously warned such a profit would be a “one-time, nonrecurring event” and expects to return to a net loss in subsequent quarters.

Analysts polled by Thomson Reuters were expecting a loss of 36 European cents a share.

The company has reported net losses every year since launching in 2008, and has said it is prioritizing growth over profit as it works to maintain its corner in the music-streaming market.

Revenue rose 31% to €1.35 billion, at the high end of the company’s guidance, and just above analyst expectations.

Free cash flow—a measure of the cash a company generates that many investors view as a proxy for performance—was €33 million in the quarter, up from €18 million in the previous quarter and negative €89 million a year earlier.

Growth in family and student plans continued to drive subscriptions and to weigh on average revenue per user, which fell 6% to €4.73.

Spotify tempered the high end of its subscriber-growth outlook for the December quarter, forecasting its subscriber count to hit 93 million to 96 million and active users to reach 199 million to 206 million; it had previously guided for up to 97 million subscribers and up to 207 million active users.

The company backed its revenue guidance for the quarter of €1.35 billion to €1.55 billion.

Spotify will reportedly release an in-car music player later this year

It’s rumored to cost around $100

Jan 18, 2019

Spotify is planning to release an in-car music player with voice controls later this year, anonymous sources told The Financial Times. Spotify has previously teased this type of product with pop-up screens in the Spotify app seen by some customers, as The Verge reported back in April, but today’s news further confirms its existence. The Times says the device will be priced around $100. Its rumored release comes as companies including Apple (with CarPlay), Google (Assistant and Android Auto), and Amazon (Alexa) compete for in-car dominance.

Spotify’s very first hardware device will attempt to deliver music more directly to customers instead of going through Apple’s CarPlay or Google’s Android Auto, platforms found on newer vehicles that the company already supports. It will sync with car stereos through Bluetooth — much like a smartphone — and include buttons you can preset to correspond with your favorite playlists. The device will support voice commands like those currently offered in the Spotify mobile app, but other hardware features like storage capacity and whether the device will offer LTE cellular connectivity are unknown.

Having a single-purpose Spotify device that can be left in the car at all times could be more convenient than constantly fiddling with your phone to play songs over Bluetooth (or with an aux cable). It might also be safer, depending on where you’re able to mount the product. While both CarPlay and Android Auto can be configured to play Spotify, not everyone has access to those in-car software platforms from Apple and Google, and you need to plug in for the best experience.

Designing a device for Bluetooth-compatible stereo systems gives Spotify a much wider base of potential customers and guarantees support for more vehicles, but convincing people that they need it might be a tough sell. The better idea might be to bundle it with the Spotify music service, and the company seems to be exploring this: Spotify’s previous mentions of the in-car product suggested it will be offered as part of a new monthly subscription — though it might require a 12-month commitment. We’ve reached out to the company for comment on today’s report. Earlier this week, Spotify rolled out a simplified Car View mode for its Android app, which is automatically activated when connected to a vehicle’s Bluetooth system.

For the three months ended Dec. 31, Spotify posted a profit of €442 million, or 36 euro cents a share, on €1.5 billion revenue. That compares with a loss of €596 million, or €3.87 a share, on revenue of €1.15 billion in the year-earlier period. Analysts polled by Thomson Reuters were expecting a loss of 18 euro cents a share.

The company posted an operating profit of €94 million.

Quarterly revenue rose 30%, in line with analyst estimates.

For the full year, Spotify said it lost €78 million on €5.26 billion revenue.

Free cash flow — a measure of the cash a company generates that many investors view as a proxy for performance — was €84 million in the quarter, up from €33 million in the previous quarter and €74 million a year earlier.

Average revenue per user shrank 7% to €4.89 as many of Spotify’s new subscribers come in through family plans and in international markets with lower pricing power.

The company now has 207 million monthly active users, just above its previous forecast of up to 206 million. Spotify said 96 million of those users are paying subscribers, in line with its guidance.

For the first quarter, Spotify expects total monthly active users to grow to 215 million to 220 million, and premium subscribers to increase to 97 million to 100 million. The company expects to report an operating loss of €50 million to €120 million while revenue is expected to grow to €1.35 billion to €1.55 billion.

For the year, Spotify forecast total monthly active users to hit 245 million to 265 million and premium subscribers to reach 117 million to 127 million. The company expects and operating loss of €200 million to €360 million on revenue of €6.35 billion to €6.8 billion.

Spotify Is Acquiring Pair of Podcasting Companies, Signaling Broad Ambitions

The world’s biggest music-streaming company wants to become the world’s most important audiostreaming company.

Spotify Technology SA is buying a pair of podcasting companies, accelerating its investment in non-music content as it seeks to broaden its appeal and snap up share of listening time from radio.

The music-streaming company, which is already the second-largest podcasting platform, said it would buy podcast publisher Anchor in a move to increase its presence in other forms of audio. It also said it is buying podcast producer Gimlet Media, a deal The Wall Street Journal previously reported was in the works.

The acquisition plans come as the company reports its first-ever operating profit for the fourth quarter, a result Chief Executive Daniel Ek says validates the company’s strategy.

“We can put that to bed and say the model works,” he said in an interview. “We said we can and did become profitable and now we’re going back to investing.”

Terms of the deals weren’t disclosed, but Spotify’s guidance indicates it expects to be spending heavily.

Gimlet Media, which was co-founded by former “This American Life” producer Alex Blumberg and former Boston Consulting Group consultant Matthew Lieber in 2014, is the producer of popular podcasts like “Reply All,” “StartUp” and “The Nod.” The Wall Street Journal has a content partnership with Gimlet Media.

Anchor, founded in 2015, makes an app intended to simplify the process of creating, distributing and making money from podcasts. It claims to be home to 40% of the world’s new podcasts.

Spotify believes it can do for podcasting what it did for music, by bringing better curation, customization and recommendation, while developing tools and collecting data for podcasters.

Mr. Ek says he thinks in 10 years Spotify will still be considered a music company, but when speaking about audio ambitions draws parallels to radio.

“What people do is listen predominantly to music,” he said. “But talk enhances the experience.”

While podcasts could be more profitable for Spotify than music, Mr. Ek says the expansion into the medium is primarily about broadening the service’s appeal and taking some of the two hours a day people spend listening to radio globally—and making money from it.

Mr. Ek estimates video commands about a $1 trillion market, compared with around a $100 billion combined music and radio industry.

“The question I always ask myself is, are your eyes really worth 10 times as much as your ears? And I don’t think that’s the case,” he says. “If we add more monetization opportunities the industry will grow and that’s the opportunity.”

Already, Spotify has seen that podcasting commands an engaged audience: People who listen to podcasts spend twice as much time using the service, and tend to stream more music. That, in turn, makes them less likely to cancel their subscriptions.

Investing in podcasting, Mr. Ek says, will draw more of those users who may not have considered joining Spotify before.

Spotify currently only sells ads for its original, exclusive podcasts, but sees an opportunity to begin serving up ads across all podcasts.

Downward pressure on ARPU has moderated, and we expect that ARPU declines through the remainder of the year will be in the low single digits. As we’ve spoken about in previous quarters, the declines in ARPU are a result of shifts in both product and geographic mix. Approximately 75% of the impact to ARPU is attributable to product mix changes, and the remainder a function of changes in geographic mix and other factors.

Shares of Spotify Technology S.A. shot up 6.9% in premarket trading Monday, after the Luxembourg-based music streaming service reported a surprise third-quarter profit and sales and monthly active users (MAUs) that beat expectations. The company swung to a net profit of €241 million ($267.5 million), or €0.36 a share, from a loss of €76 million, or €0.42 a share, in the year-ago period. That beat the FactSet consensus for a loss of €0.24. Revenue rose to €1.73 billion ($1.92 billion) from €1.67 billion, to beat the FactSet consensus of €1.72 billion. MAUs grew 30% to 248 million, above the FactSet consensus of 243 million. Gross margin was 25.5%, above previously provided guidance of 23.2% to 25.2%.

For the fourth quarter, the company expects revenue of €1.74 billion to €1.94 billion and MAUs of 255 million to 270 million, compared with the FactSet consensus for revenue of €1.89 billion and MAUs of 259 million.

Spotify’s Subscribers Jump but the Outlook Sinks the Stock

April 27, 2022

Spotify shares fell Wednesday despite the streaming platform reporting a sharp increase in users during the first quarter. Weaker-than-expected guidance appears to be the culprit.

Spotify said monthly active users rose 19% in the quarter from a year earlier to 422 million. The number included 3 million extra users who were logged out during a service outage and then created new accounts to log back in, the company said.

The company said even without those users it still believes that MAUs would have reached 419 million in the first quarter, exceeding its expectations by about 1 million.

Spotify said its premium subscribers rose 15% in the first quarter to 182 million. Excluding the involuntary churn of about 1.5 million subscribers as a result of the company’s exit from Russia, “growth was above expectations and aided by outperformance in Latin America and Europe,” the company said.

Average revenue per user in its premium business rose 6% to €4.38, the company added.

Total revenue in the quarter rose 24% to €2.66 billion. Profit in the quarter was €131 million, up from €23 million a year earlier.

For the second quarter, Spotify said it expects monthly active users of 428 million, below analysts’ estimates of 428.1 million, according to FactSet. Total premium subscribers were forecast at 187 million, below forecasts that called for a little more than 189 million.

The forecast, Spotify said, assumes it will lose an additional 600,000 subscribers from its full closure of Russian operations in April.

The company also said it expects total revenue in the second quarter of €2.8 billion, assuming a 6% foreign exchange tailwind to year-over-year growth, and gross margin of 25.2%.