Spotify said on Tuesday that third-quarter profits were pressured by slow advertising growth, raising concerns about the weak global economy’s effect on digital advertising. Spotify shares fell 4 percent in after-hours trading, plagued by sector-wide weakness, after Google parent Alphabet missed market estimates for quarterly revenue as advertisers cut spending.
Spotify, whose stock has fallen 58.5 percent this year, said third-quarter margins were narrower than it had expected, blaming “some softness in advertising,” currency fluctuations and retroactive royalty payments to songwriters and music publishers.
“This is an early indicator of the concerns companies have about the economy,” Spotify CEO Daniel Ek told Reuters. “We’re not concerned in the long term, but it certainly affects us in the short term, and it also contributed to the gross margin that we had this quarter.”
The number of monthly active users rose to 456 million in the third quarter, an addition of 23 million users in three months, beating Spotify’s guidance and analysts’ forecasts of 448.6 million.
Premium subscribers, which account for most of the company’s revenue, grew 13 percent to 195 million, topping analyst estimates of 194 million.
Spotify’s ad-supported income grew 19 percent in the quarter to EUR 385 million (around Rs. 3,200 crore), with double-digit growth across all regions except Europe, where Spotify said it saw the impact of challenging economic conditions in the region.
Investors have worried that consumer spending on entertainment will suffer as the global economy pulls from the lingering effects of the pandemic, Russia’s invasion of Ukraine, rising interest rates and fears of a recession.
Spotify revenue for the third quarter reached EUR 3 billion (about Rs. 25,000 crore), up 21 percent from the same time last year and in line with analyst estimates of EUR 3 billion, according to IBES data from Refinitiv.
The company said gross margins fell to 24.7 percent, below expectations, citing softness in the ad market and a large publishing contract outside the United States.
Spotify posted a quarterly operating loss of EUR 228 million (roughly Rs. 1,900 crore) in the quarter, which is higher than analysts’ expectations of EUR 168.6 million (roughly Rs. 1,400 crore).
For the fourth quarter, the company estimated it would reach 479 million monthly active users, an increase of 23 million over the last three months of the year. It predicted it would add 7 million premium subscribers, bringing the total to 202 million.
Revenue for the fourth quarter would reach EUR 3.2 billion (about Rs. 26,300 crore) with an operating loss of EUR 300 million (about Rs. 2,500 crore).
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