Spotify's Unexpected Profit Confirms It Is Truly Becoming An All-Purpose Audio Platform - Netflix (NASDAQ

Known as the Netflix (NASDAQ:NFLX) of music, Spotify Technology S.A. (NYSE:SPOT) reported a surprise quarterly profit, its first in 18 months. The Swedish-based music streaming king is also going against Amazon.com Inc (NASDAQ:AMZN) as it expanded its business into audio books and podcasts. Upon the strong earnings report, Spotify shares closed 10% up on Tuesday with its stock having more than doubled year to date, giving the company a market value of $33.22 billion.

Challenging Amazon

After branching out into podcasts in 2015, Spotify made a major push into audiobooks to further diversify its revenue streams. It announced earlier this month it will be providing its subscribers access to more than 150,000 audio books, challenging Amazon and its Audible. Its subscribers in the U.K and Australia already got this perk, while its U.S. launch is scheduled for winter.

According to the latest earnings figures, Spotify is approaching profitability on the podcasting front. Spotify CFO Paul Vogel reiterated that the podcasting segment is expected to reach breakeven by next year. Amazon undoubtedly changed how people read but Spotify is poised to challenge its audiobook monopoly.

Quarterly Highlights

Cost cutting measures such as lowered marketing spending and personnel costs that came from trimming 2% of its workforce enabled Spotify to post a profit of 65 million euros ($68.9 million) or 33 euro cents in earnings per share, topping LSEG’s expectation of a loss of 22 euro cents. During the quarter that ended on September 30th, revenue expanded 11% YoY to 3.36 billion euros, topping LSEG’s expectation of 3.33 billion. Price increases contributed to revenue growth, but Spotify also gathered 226 million subscribers, topping StreetAccount’s estimate of 224 million. Advertising revenue grew 16% YoY and 11% quarter-over-quarter to €447 million (approximately $473.4 million).

During the quarter, Spotify gathered 574 million monthly active users, also topping 572.1 million that StreetAccount estimated. Monthly active users drove 447 million euros of ad-supported revenue that grew 16% YoY.

Spotify is now deeply embodied in our everyday culture.

Streaming is cheaper than buying music, while also being easier to get and nominally more ethical than piracy. In 2022, Recording Industry Association of America revealed that streaming services accounted for 84 percent of recorded music revenues, while physical media made only 11 percent and falling digital downloads brought in merely 3 percent of revenue.

Outlook

The music streaming giant is expecting quarterly profits to continue both during the undergoing quarter and throughout the upcoming year while guiding for fourth-quarter operating profit of €32 million. Spotify expects to end the year with 235 million premium subscribers, which implies adding about 9 million in the final quarter, and 601 million monthly active users which implies 27 million additions.

Spotify succeeded because it bailed large music groups out.

Sony Group Corporation (NYSE:SONY) and Tencent Holdings Limited (OTC:TCEHY) who owns substantial portions in Warner Music Group and Universal Music Group are all part-owners of Spotify which became their valued partner instead of aiming to cut them out. By doing so, it became the music industry’s default platform.

Since conquering the global streaming market one decade ago, one that it continues to dominate, it’s safe to say that Spotify has successfully expanded from being a music streamer to an all-purpose audio platform and it is more than poised to challenge Amazon’s dominance in the audio book universe.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.

SPOTSpotify Technology SA

$519.77-2.20%

TCEHYTencent Holdings Ltd

$65.90-%

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