Spotify Revenues Rise 11% on Larger Than Expected Subscriber Growth in Q2

Spotify reported its revenues rose 11% to €3.18 million ($3.51 million) for the second quarter as surging monthly active users and growth in premium subscribers tamped down costs from staff and podcast cuts in the previous three months.

The company’s total revenue growth–which was up 14% in constant currency, a measure that strips out the effects of foreign exchange fluctuations–relied on an 11% uptick in revenue from premium subscriptions, where they added 10 million net new accounts, and a 12% increase in ad-supported revenues. Monthly active users, or the total number of unique visitors to Spotify every month, rose 27% to 551 million in the quarter compared to 220 million premium subscribers in the quarter.

The growth in premium subscribers modestly beat company guidance by 3 million and was enough to offset quarterly operating losses of €247 million ($272.7 million), as the company incurred numerous one-time costs related to the 6% cut to global staff and the elimination of some podcasting deals Spotify announced in January.

Executives said those quarterly operating losses, which were 27% higher than the €194 million ($214 million) in the year-ago quarter, will improve throughout the rest of the year as the recently-announced premium subscription price increases come into effect in September.

“While this won’t impact user revenue much up until the end of (the third quarter), we expect it to have a meaningful impact on (the fourth quarter) and beyond,” Spotify Chief Executive Officer Daniel Ek said on a call with investors. “We continue to make progress on improving efficiency across the company. These moves position us to become a much stronger business in the future.”

In addition to the staff cuts, Spotify eliminated some office space and sold the cloud-based recording studio SoundTrapit bought in 2017 for reportedly $30 million. Those cuts resulted in €135 million ($149 million) in net charges in the quarter, with €44 million ($48.5 million) accounted for in the company’s gross margin and €91 million ($100 million) reflected in Spotify’s operating expenses. Roughly €25 million ($27.6 million) charges were were cash related, Spotify’s Chief Financial Officer Paul Vogel said on the call.

Average revenue per user fell 3% in the quarter, and the company’s gross margin of 24.1% was below its guidance of 25.5%. When adjusted to strip out these one-time expenses r, Spotify said its margin was in-line with its guidance at 25.5%.