Spotify Q2 2018 Earnings More Needed from Emerging Markets and Ad Supported

The 20,000 Foot View:  Spotify’s            2018 earnings show continued solid progress across most of its performance metrics. However, investor scrutiny is intensifying, especially with the growing subscriber arms race in the US becoming — albeit incorrectly — perceived as a litmus test for global success. Spotify’s earnings reflect a need to drive faster growth in emerging markets and ad supported, which helps explain the company’s extra emphasis on its artists’ direct business efforts, even though this puts Spotify at direct odds with its rights holder partners. The tightrope act continues.

Key Findings

• Spotify hit            subscribers, up            from            million in            which is in line with                       million forecast made at the            of 2018
• Ad supported            on a restated basis, declined            one million compared to                      
• Trials are            slightly less impact with subscriber            adds at eight million, one            less than the net adds            the previous promotional trial quarter
           2018 saw no reported change in the distribution of Spotify’s users, either paid or subscribers
• Rest of            a priority region, is not            fast enough – just            million            subscriber added, highlighting the importance            the Indian licensing impasse
• Spotify needs            start delivering on its Rest            World promise, especially to shift            attention away from the US            arms race it is unlikely            win
• Total revenue                       2018 was            million, up            on            previous quarter and            year-on-year, which            a slower yearly growth rate            in                      
• Ad supported            is not growing fast enough,            to            of all revenue in            to            in                       though ad supported            and APRU improved
• Premium ARPU            up to            in                       from            in            still below                       levels and            down            one year previously
• Rights holder            per subscriber was up slightly                       from            in                       but still significantly            the                       level of           
• Gross subscriber            were            million in                       meaning it            a net total of four            subscribers in the quarter

Companies and brands mentioned in this report: Amazon, Amazon Music Unlimited, Apple, Apple Music, Spotify