Spotify now has 195 million paying subscribers, the company announced Tuesday, an increase of 7 million since last quarter, exceeding expectations with 1 million net additions. The company expects to exceed the 200 million mark by the end of the year.
Even with that crisp subscription news, Wall Street wasn’t happy with the results. In after-hours trading, the share is more than 6 percent lower. Spotify’s gross profit margin was 24.7 percent, two points lower than the same quarter last year and below the company’s earlier expectations. The company said this was the result of an “adverse adjustment to prior-period estimates for rightsholders’ liabilities,” which could refer to a recent decision by the Copyright Review Board that streamers should pay songwriters and publishing rights a larger share of music revenue.
The fact that music is only getting more expensive explains Spotify’s pressure on podcasting, and its library is growing. There are now 4.7 million podcasts available on the platform, up from 4.4 million the previous quarter. While podcasting is still not profitable for Spotify, the company said it saw double growth in podcast revenue.
However, it’s a bit tricky with the internal podcasts. Speaking with investors, Spotify CFO Paul Vogel referred to a one-time “restructuring fee” in its podcasting business, which appears to refer to the layoffs at Gimlet and Parcast earlier this month. Those changes, Vogel said, “should lead to improved productivity at select studios.”
Then there is the issue of pricing. When asked about Apple Music’s price increase, CEO Daniel Ek said Spotify would work with the labels on whether or not to follow suit. He wasn’t final on it, but Apple’s decision certainly seems to have opened the door for price hikes across the board. I also dodged a question about when HiFi would arrive, which would only be available at a more expensive level.
