SPOTIFY HITS 130M PAID SUBS, ADDRESSES PANDEMIC

Spotify is up to 130m paid subscribers and 286m monthly active users, increases of 31% over the same Q1 period in 2019.

For MAUs, Q1 2020 was the third consecutive quarter of year-on-year growth above 30%. Growth in North America accelerated for the second straight quarter led by the U.S.

Total revenue of €1.85b ($2b) grew 22% from Q1 2019. Premium revenue grew 23% to €1.7b ($1.84b). Ad-supported revenues grew 17%. Gross margin finished as 25.5% in Q1, which both exceeded expectations and finished at the high end of our guidance range.

In a letter to shareholders, the company wrote “our outlook for most of our key performance indicators has remained unchanged with the exception of revenue where a slowdown in advertising and significant changes in currency rates are having an impact. Our business remains very healthy with more than €1.8 billion in liquidity and we expect to be free cash flow positive for the year. Overall, despite some changes in listening patterns, we are encouraged with the trends we are seeing, and continue to be optimistic about the underlying growth fundamentals of the business.”

During a call with analysts, CEO Daniel Ek emphasized that Spotify is focused on converting listeners of linear audio—aka radio—to on-demand. Rather than other streaming services, Ek says the competition is “learned and long-held behaviors” and as more people spend more time at home and less time in cars, they hope to capitalize on the moment. One example is the recently launched At Home Hub that includes wellness content and news podcasts.

In the letter, the company outlined effects of the COVID-19 pandemic and Spotify’s response.

• Over the last few weeks, listening has started to rebound. New and reactivated MAUs grew substantially, even during lockdown periods in major markets. Despite some of the consumption changes, the ratio of Daily Active Users relative to Monthly Active Users was strong in the quarter, higher than in Q1 2019.

• Morning routines have changed dramatically to the point that weekdays look like the weekend, more significantly in podcasts than in music. Listening time around household activities in the afternoon and early evening have been up double digits over the past few weeks.
• Consumer engagement started to decline in late February in hard hit markets such as Italy and Spain.
• Approximately 1 in 6 respondents to an exit survey in the U.S. cited COVID-related reasons for canceling their accounts.
• The company will slow hiring for the rest of the year and have reduced open headcount by 30% from prior growth expectations.
• Spotify is beginning to see growth in reactivations following stay-at-home orders being implemented. Over the last few weeks, listening on game consoles is “exploding” and podcasts related to wellness and meditation have seen a significant uptick.

Ek noted that during the shutdown, the company has seen an increase in the streaming of instrumental music and more catalog. “I like to think that [because of the success of] Dua Lipa and The Weeknd, more artists will come back to releasing new music. We should see a lot more new music in Q2 and Q3.”

During the pandemic, Ek said 50,000 artists have signed up to promote causes through Spotify and encourage listeners to make contributions. The Spotify team is in the process of studyng and responding to feedback from the effort.