Spotify’s 7 Million New Subscribers Bumps Revenue Up 20%

Spotify added 7 million subscribers in the second quarter, roughly a million more than forecasted, and that boosted revenue, profit margins and the company’s stock price, which surged 12% on Tuesday.

Spotify reported 3.8 billion euros ($4.15 billion) in total revenue in the second quarter, a 20% increase over the year-ago period, and a record-high gross margin of 29.2% due to favorable music content costs, executives said. Spotify’s operating income was up for the second straight quarter to 266 million euros ($289.6 million) on a higher gross margin and lower marketing, personnel and other costs.

Spotify’s 626 million total monthly active users (MAUs) missed the internal target of 631 million MAUs set last year, but the company grew premium subscribers by 1 million more than forecast while it was raising prices in the U.S. again. That increase brings the premium subscriber total to 246 million.

“Overall, we are encouraged by the traction we are seeing from our monetization initiatives and remain focused on delivering the goals out lined at our 2022 investor day,” the company said in a statement.

Revenue from premium subscribers grew 21% year over year thanks to those subscriber gains and 10%-higher premium average revenue per user (ARPU). Revenue from ad-supported users rose 13%.

The price of Spotify’s premium individual plan in the U.S. rose $1 to $11.99 a month and the duo plan jumped a buck to $16.99 a month in July.

Spotify has been under pressure from major music companies and organizations to reverse changes it made in May to its bundled subscription services that added audiobooks to its premium tier. As a result, Spotify said it will pay songwriters a discounted bundle rate for premium streams. Billboard estimates the move, which reclassified premium, duo and family subscription services as “bundled subscription services,” could cut songwriters’ and music publishers’ royalty payments by $150 million in the first year.

Groups like the MLC are suing Spotify claiming the streamer “improperly” classified its premium tiers as bundles.

Spotify Chief Executive Daniel Ek declined to comment on the MLC lawsuit during a call discussing his company’s results. He defended the amount of publishing and mechanical royalties Spotify pays out to stakeholders and described his company’s relationships with music companies as “healthy.”

“We keep increasing our payouts year over year,” Ek said. “It’s not as much a zero sum game as people make it out to be. There are always things we’re arguing about for sure. But overall the music industry is growing. We are spending a lot of time and effort making sure it keeps growing.”

The lower personnel costs that helped boost operating income are in part due to staff cuts the company made last December.

Topline Results for Q2: