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SPOTIFY HITS 87M SUBSCRIBERS

Spotify is up to 87m paid subscribers, a 40% year-to-year increase, while the number of users overall is up to 191m, a 28% rise from the third quarter of 2017.

Spotify announced the numbers Thursday morning, along with its financial results for the third quarter of 2018. Q3 revenue was $1.54b, with premium subscriptions accounting for $1.38b of that total. Both figures were up 31% over 2017. Ad-supported revenue hit $162m in the quarter, a 28% rise.

Growth in subscriptions was driven by family and student plans, and stronger user retention rates, the company reported.

Thanks to a tax event via its investment in China’s Tencent Music, the company posted its first-ever profit. But the likelihood that the company will again post a loss in the fourth quarter, and an anticipated slowdown in subscriber growth, pushed down the stock in early morning trading by nearly 10% to $135.18.

In a call with investors, CEO Daniel Ek and CFO Barry McCarthy emphasized the company’s strategies over details regarding future plans or negotiations. While he explained the strategy in multiple ways, Ek sounded most convincing when he boiled it down to “ubiquity, personalization and superior user experience.”

McCarthy noted “the pace of innovation has slowed” which has resulted in “an accelerated pace of investment” in R&D, specifically investing in more features to improve the user experience.

Both men are bullish on the future of podcasting and making moves to get radio users to migrate to the streaming service.

“We’re in the early days of podcast marketing,” Ek said, adding that they were experimenting with how to set up deals. “It’s an integral component and the opportunity is gigantic to bring audio online. Non-music content has an important place” in Spotify’s future.

While Ek said it was too early to discuss the impact of recent deals with Samsung, Hulu and others, he did note the company will “continue to build out its partnership with Google.”  

Ek said they were “encouraged” by the results of their recent Spotify for Artists program, noting that 67k artists had submitted music for inclusion in playlists and that 10k songs have made it onto editorial playlists.

Ek noted that the recent MMA bill is good—“it’s easier to know who the rights holders are and how to pay them”—and continued to explain how direct distribution is not the same as being a label.

“We don’t view our strategy as being in opposition of our partners.” Noting the cost of launching a new artist, Ek said it was important to view the company’s strategy as making the star-making machine more efficient so “more artists can be successful and more labels can be successful. It’s not Spotify wins, labels lose.”

For the fourth quarter, Spotify expects to see total monthly users surpass 200m, premium subscribers to reach between 93m and 96m, total revenue to top $15b and operating profit/loss to be anywhere from $17m in the black to $40m in the red.

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