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Spotify – Spot the difference

Third quarter revenue rose 27% to €2.5bn, reflecting 22% rise in Premium subscriptions and a 75% increase in ad-supported subscriptions. Operating profit was €75m, compared to a loss of €40m this time last year – better than management expected.

Spotify maintained guidance for next quarter, and expects operating losses of €152m – €72m.

The shares rose 1.1% in pre-market trading.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown:

“Spotting the difference between this quarter and the same time last year is easy. There has been an impressive increase in monthly active users, and crucially this has come in the form of broad growth across those that use the free ad-supported version of Spotify, and those that pay for the advert free subscription. A boost to Premium users is a great feat, but bringing people in through the free version is more important. It is these listeners that fill the top of the revenue funnel, with the idea being that they will then filter down and become paying subscribers.

Running in parallel with the active user beat is a huge swing in advertising revenue. The pandemic saw marketing spend in the firing line, as companies hunkered down for the storm, but corporate wallets are appearing from the parapet once more.

That leads the biggest question mark to one of short-term demand. There’s a debate to be had about whether increased work-commutes, or stay-at-home orders are the better catalyst for demand for Spotify. We happen to think it’s the former, which if true, could mean Spotify’s growth will depend on the outcome of government responses to rising Covid cases.”

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