American and Swedish flags fly below Spotify Technology SA signage displayed outside New York Stock Exchange (NYSE) during the company’s first day of trading in New York, U.S. (Photographer: Michael Nagle/Bloomberg)

Spotify Tops Estimates With 100 Million Paid Users

(Bloomberg) -- Spotify has reached 100 million paid subscribers, a first for any online music service, adding more customers in the latest quarter than analysts expected and boosting confidence the company has lots of room to grow.

Spotify Technology SA took on 4 million customers in the quarter, compared with the 3.3 million forecast by analysts. But its first-quarter loss was 79 cents a share, wider than the 41-cent loss analysts expected. After a brief rise, the stock fell as much as 2 percent to $135.50 in New York trading.

Competition from Apple Inc., Amazon.com Inc. and YouTube has done little to slow Spotify’s growth around the world, and the company has relied on its independence from some of the world’s largest companies to its advantage. It has boosted its customer base through promotional deals with Hulu, Samsung and even Alphabet Inc.’s Google (YouTube’s parent company).

“The music industry market is way bigger than most people realized,” Chief Executive Officer Daniel Ek said on a call with analysts.

The company forecast it would add a further 7 million to 10 million subscribers in the current quarter. While Spotify has amassed its current user base thanks to music, the company has acquired three podcasting companies in the past few months to drive subscriber growth through other mediums.

Spotify spent about $400 million to buy Gimlet Media Inc., Anchor and Parcast, hoping that podcasting will turn the company into the world’s top audio platform and reduce its reliance on music. Record labels collect the majority of its annual sales.

Label Payments

Payments to labels are a big reason the Swedish company is still losing a lot of money. Spotify attributed the first-quarter loss largely to higher costs for stock options and restricted stock units, thanks to its share-price gains. Gross margin was 24.7 percent, above the high end of the company’s guidance range.

Spotify is in the midst of negotiations with the world’s three largest music companies -- Universal, Sony and Warner. Executives have cautioned investors not to expect those deals to reduce its costs, but still sounded enthusiastic about concluding talks. “We’re feeling good about the progress we’re making,” Chief Financial Officer Barry McCarthy said in an interview.

Though Spotify’s premium subscribers topped expectations, monthly active users fell just short at 217 million. Spotify was projected to report about 218.3 million total users and 99.3 million premium subscribers, according to estimates compiled by Bloomberg News.

Spotify Tops Estimates With 100 Million Paid Users

Expansion into new territories, such as India, will sustain growth in free users for years to come, the company said. Spotify has added 2 million customers since expanding to India earlier this year, and McCarthy said Latin America and Asia are growing quickly. Spotify offers a free service with advertisements and limited use, selling a full buffet of on-demand songs and playlists without ads for a fee.

Its growth in recent years has buoyed the entire music industry. Record sales have climbed four years in a row, and surpassed $19 billion in 2018. Shares of the music streaming service have rallied 22 percent so far this year, compared with a 17 percent gain in the S&P 500.

©2019 Bloomberg L.P.