Spotify Technology SA’s
SPOT -2.21%
big bet on podcasts appears to be paying off.
Third-quarter advertising revenue was up 75% from a year earlier, and user growth picked up after a lull earlier this year.
At the end of the quarter, Spotify had 381 million monthly active users, up 19% from a year earlier and at the high end of the company’s expectations. Paying subscribers, its most lucrative type of customer, also climbed 19% to 172 million, in line with the company’s guidance range.
Average revenue per user for the subscription business in the quarter climbed 4% to €4.34, equivalent to $5.03. That is a turnaround for the metric, which has been declining for years as the company attracted new subscribers through discounted plans and lower prices in newer markets. Last fall, Spotify began raising the price of its family plan in dozens of markets, including the U.S. It said those increases have finally helped lift per-user revenue.
Revenue from subscriptions jumped 22% to €2.18 billion. Advertising revenue rose to €323 million. Advertising, which typically has accounted for around 10% of overall revenue, has become a particular growth area as Spotify expands its podcast business. During the quarter, it made up about 13% of total revenue.
The company highlighted double-digit year-over-year gains at existing Spotify studios—the Ringer, Parcast, Spotify Studios and Gimlet—and growth from its acquisition of podcast-ad firm Megaphone as well as its exclusively licensed podcasts “The Joe Rogan Experience,” “Armchair Expert” and “Call Her Daddy.” The company also said since the rollout of Spotify Audience Network, which allows advertisers to buy spots targeting audiences rather than on specific shows, the number of podcasts in the network has grown by more than 50%, and nearly one in five Spotify advertisers are participating.
Spotify said it has 3.2 million podcasts available on its service, up from 2.9 million in the prior quarter.
Overall for the quarter ended Sept. 30, revenue rose 27% to €2.5 billion, at the top of the company’s guidance.
Spotify swung to a profit of €2 million from a loss of €101 million a year earlier. Per share, the company posted a loss of 41 European cents, compared with a loss of 58 European cents a year earlier. While the company has periodically reported a quarterly profit, executives have said it will continue to give priority to growth—attracting new subscribers and investing in podcasting.
Free cash flow—a measure of the cash a company generates from operations, and viewed by many investors as a proxy for performance—was €99 million, down from €103 million a year earlier, but up from €34 million in the previous quarter.
For the fourth quarter, the company said it expects monthly active users to grow to between 400 million and 407 million, and for premium subscribers to grow to between 177 million and 181 million. It said it anticipates revenue of €2.54 billion to €2.68 billion.
News Corp’s Dow Jones & Co., publisher of The Wall Street Journal, has a content partnership with Spotify’s Gimlet Media unit.
Write to Anne Steele at Anne.Steele@wsj.com
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