{"id":518680,"date":"2021-07-28T06:03:26","date_gmt":"2021-07-28T10:03:26","guid":{"rendered":"https:\/\/www.marketnewsdesk.com\/index.php\/spotify-technology-s-a-announces-financial-results-for-second-quarter-2021\/"},"modified":"2021-07-28T06:03:26","modified_gmt":"2021-07-28T10:03:26","slug":"spotify-technology-s-a-announces-financial-results-for-second-quarter-2021","status":"publish","type":"post","link":"https:\/\/www.marketnewsdesk.com\/index.php\/spotify-technology-s-a-announces-financial-results-for-second-quarter-2021\/","title":{"rendered":"Spotify Technology S.A. Announces Financial Results for Second Quarter 2021"},"content":{"rendered":"

<\/p>\n

Spotify Technology S.A. Announces Financial Results for Second Quarter 2021<\/b><\/p>\n

NEW YORK–(BUSINESS WIRE<\/a>)–
\nSpotify Technology S.A. (NYSE:SPOT):\n<\/p>\n

This press release features multimedia. View the full release here: https:\/\/www.businesswire.com\/news\/home\/20210728005343\/en\/<\/a><\/p>\n

\"(Graphic:<\/p>\n

(Graphic: Business Wire)<\/p>\n<\/div>\n

\nDear Shareholders,\n<\/p>\n

\nMost of our major metrics — Subscriber growth, Revenue, Gross Margin, and Operating Income — performed better than expected this quarter. The exception was MAUs, where we fell short of our guidance range. The quarter was led by improving ARPU, decreased churn, a return to per user consumption growth, and significant advertising strength. We did see a second quarter of greater MAU variability mainly due to ongoing COVID-19 headwinds and a temporary issue related to user intake on a third party platform. However, trends improved in the back half of the quarter. Additionally, we generated positive Free Cash Flow of \u20ac34 million.\n<\/p>\n

MONTHLY ACTIVE USERS (\u201cMAUs\u201d)<\/b><\/p>\n

\nTotal MAUs grew 22% Y\/Y to 365 million in the quarter, finishing below our guidance range and forecast. Despite our underperformance, we added 9 million MAUs in Q2, which drove double digit Y\/Y growth in all regions.\n<\/p>\n

\nMAU performance was slower than expected due primarily to lighter user intake during the first half of the quarter. COVID-19 continued to weigh on our performance in several markets, and, in some instances, we paused marketing campaigns due to the severity of the pandemic. Separately, a user sign-up issue associated with a global third party platform created unexpected intake friction, which also impacted MAU growth. This issue has since been resolved.\n<\/p>\n

\nOverall, we saw a return to better growth patterns in the back half of the quarter. Although we continue to face near-term uncertainty with respect to COVID-19, we remain confident in the underlying health of our user funnel, and our existing user retention activity remains consistent with historical trends.\n<\/p>\n

\nGlobal consumption hours continued to grow meaningfully in Q2 on a Y\/Y basis. On a per user basis, global consumption levels returned to Y\/Y growth in the quarter, led by gains in developed regions such as North America and Europe.\n<\/p>\n

PREMIUM SUBSCRIBERS<\/b><\/p>\n

\nOur Premium Subscribers grew 20% Y\/Y to 165 million in the quarter, towards the upper end of our guidance range and modestly ahead of forecast. We added 7 million subscribers in Q2, which drove healthy double digit Y\/Y growth across all regions. We saw strong performance of our Standard product across both Europe and North America.\n<\/p>\n

\nCompared with the last few years, we shortened our mid-year promotional campaign cycle from 6 weeks to 4 weeks, and performance exceeded expectations. Additionally, we added or expanded several major promotional partnerships in the quarter, including a renewal and expansion of our Samsung promotion (offering 3 month trials in 73 markets to all new and existing mobile\/speaker\/wearable and appliance devices), a renewal and expansion of our Microsoft Gamepass promotion (offering 3 or 4 month trials in 15 markets), a new Epic\/Fortnite promotion (3 month trial in 25 markets), a renewal of our Paypal promotion (3 month trial in 10 markets), and a renewal and expansion of our Vivo promotion (3 month trial in Brazil). Additionally, we announced a new promotion with TikTok (3 or 4 month trial across 7 countries in EMEA) which launched in mid July.\n<\/p>\n

\nOur average monthly Premium churn rate for the quarter was down 23 bps Y\/Y and down modestly Q\/Q. The Y\/Y improvement continues to be driven by the adoption of our higher retention offerings like Duo and Family Plans in addition to growth in high retention regions.\n<\/p>\n

FINANCIAL METRICS<\/b><\/p>\n

Revenue<\/b><\/p>\n

\nRevenue of \u20ac2,331 million grew 23% Y\/Y in Q2 (or 28% Y\/Y on a constant currency basis) and was toward the top end of our guidance range due to significant advertising strength and subscriber outperformance. FX headwinds of 430 bps were 230 bps greater than expected, primarily driven by US dollar weakness vs. the Euro. Premium Revenue grew 17% Y\/Y to \u20ac2,056 million (or 20% Y\/Y constant currency) while Ad-Supported Revenue was particularly strong, growing 110% Y\/Y to \u20ac275 million (or 126% Y\/Y constant currency).\n<\/p>\n

\nWithin Premium, average revenue per user (\u201cARPU\u201d) of \u20ac4.29 in Q2 was down 3% Y\/Y (or flat Y\/Y constant currency vs. down 1% Y\/Y in Q1). Excluding the impact of FX, we saw a benefit to ARPU from our Q1 price increases along with a marginal initial impact from Q2 price increases, offset by the impact of product mix shift.\n<\/p>\n

\nAd-Supported Revenue outperformed our forecast, driven by strong underlying demand (benefiting sellout and pricing) and aided by favorable comps vs. last year’s COVID-19 lows. The strength in Ad-Supported Revenue was led by our Direct and Podcast sales channels, with the latter benefiting from a triple-digit Y\/Y gain at existing Spotify studios (The Ringer, Parcast, Spotify Studios, and Gimlet) along with contributions from the Megaphone acquisition, the exclusive licensing of the Joe Rogan Experience, and Higher Ground. Ad Studio grew 165% Y\/Y due to the success of the video product within Ad Studio and international market contributions.\n<\/p>\n

\nWe are very pleased with the initial performance of the Spotify Audience Network which launched in the US in April. The rollout allowed us to increase our monetizable podcast inventory in the US by nearly 3x. Additionally, for opted-in podcast publishers we\u2019ve seen a double digit increase in fill rates, a meaningful increase in unique advertisers, and a double digit lift in CPMs. On July 1, we expanded the Spotify Audience Network to include Australia, Canada, and the United Kingdom.\n<\/p>\n

Gross Margin<\/b><\/p>\n

\nGross Margin finished at 28.4% in Q2, above the top end of our guidance range and reflecting 308 bps of Y\/Y expansion. While we did benefit from the release of accruals for prior period publishing royalty estimates, excluding the impact of these items, Gross Margin would have been 26.5%, ahead of our expectations. The Gross Margin improvement excluding these releases was driven by a favorable revenue mix shift towards podcasts, marketplace activity, and Other Cost of Revenue efficiencies (e.g. payment fees, streaming delivery costs), which were partially offset by higher non-music and other content costs and publishing rate increases.\n<\/p>\n

\nPremium Gross Margin was 30.8% in Q2, up 261 bps Y\/Y and Ad-Supported Gross Margin was 11.3% in Q2, up 2,321 bps Y\/Y. As a reminder, all content costs related to podcast investment are included in the Ad-Supported business for the current and historical periods.\n<\/p>\n

Operating Expenses <\/b><\/p>\n

\nOperating Expenses totaled \u20ac651 million in Q2, an increase of 1% Y\/Y (or 5% Y\/Y constant currency) and in line with our plan. Excluding the benefits of currency movements, Operating Expenses were modestly higher than forecast as lower than expected marketing expenses arising from campaign timing shifts were offset by higher personnel costs.\n<\/p>\n

\nSocial Charges were approximately \u20ac2 million higher than forecast due to an increase in our share price during the quarter. Excluding the impact of Social Charges in both periods, Operating Expenses grew roughly in line with revenue. As a reminder, Social Charges are payroll taxes associated with employee salaries and benefits, including share-based compensation. We are subject to social taxes in several countries in which we operate, although Sweden accounts for the bulk of the social costs. We don\u2019t forecast stock price changes in our guidance so upward or downward movements will impact our reported operating expenses.\n<\/p>\n

\nAt the end of Q2, our workforce consisted of 7,085 FTEs globally.\n<\/p>\n

Product and Platform <\/b><\/p>\n

\nDuring the quarter, we continued to increase the pace of our innovation efforts. On June 16, we soft-launched Spotify Greenroom, a redesigned version of Betty Lab\u2019s Locker Room app, as part of our entry into the live audio space. This mobile app allows users to join or host live audio rooms, and optionally turn those conversations into podcasts. Additionally, we announced a Creator Fund bringing new exciting content to users and helping those creators get rewarded for the content they create on the platform. We expect to move to a full commercial launch of Spotify Greenroom later this year, with an initial focus on sports, pop culture, music, and entertainment.\n<\/p>\n

\nDuring the quarter, we began rolling out our paid subscription platform for podcasters in the US. Additionally, as part of our Spotify Open Access platform strategy, we announced several new partnerships aimed at opening our platform to third-party paywalled content with the goal of becoming the world\u2019s leading audio browser. On May 20, we partnered with Storytel, one of the world\u2019s leading audiobook streaming services, to give Storytel subscribers the ability to enjoy their library of audiobooks on Spotify. On July 27, we announced more than 10 new Spotify Open Access partners — with more to come — all of which will be able to activate their subscriber base on Spotify while retaining full control over their content.\n<\/p>\n

\nWe continue to improve our search capability expanding our functionality to include filters and voice search making it quicker and more efficient for users to find content. Additionally, we rolled out a new version of Your Library to all Spotify mobile users that creates a streamlined way for listeners to explore their collection and find saved music and podcasts more easily.\n<\/p>\n

\nDuring the quarter, we also advanced our product ubiquity efforts in a number of key areas. We introduced a new miniplayer experience that allows listeners to share, explore, and discover audio from Spotify directly within Facebook, without switching between apps. On the Apple Watch, we rolled out the capability for users to download playlists, albums, and podcasts to their watch. Finally, we expanded our video podcast footprint to Xbox gaming consoles and went live with the Spotify X1 integration to Rogers Communications customers in Canada.\n<\/p>\n

Content<\/b><\/p>\n

\nAt the end of Q2, we had 2.9 million podcasts on the platform (up from 2.6 million at the end of Q1). The percentage of MAUs that engaged with podcast content on our platform improved modestly relative to Q1. Among MAUs that engaged with podcasts in Q2, consumption trends were strong (up 95% Y\/Y in aggregate and more than 30% Y\/Y on a per user basis) while week-over-week and month-over-month retention rates reached all-time highs. During the quarter, podcast share of overall consumption hours on our platform also reached an all-time high.\n<\/p>\n

\nDuring the quarter, we announced exclusive licensing deals with Call Her Daddy and Armchair Expert, both of which are now exclusively on Spotify. The Joe Rogan Experience continues to perform above expectations, and The Ringer shows, such as The Bill Simmons Podcast, grew consumption significantly as the NBA headed into the playoffs.\n<\/p>\n

\nInternationally, we released 100 new Originals & Exclusives (\u201cO&E\u201d) podcasts across markets including 5 adaptations of existing formats. We expanded Your Daily Drive to include Mexico (Ruta Diaria), Argentina (Ruta Diaria), and Brazil (Caminho Di\u00e1rio). The launches included bespoke content from 28 partners across the region, such as notable new organizations like Infobae and La Naci\u00f3n (Argentina), W Radio (Mexico), and 123 Segundos (Brazil), a Spotify original. One of the top podcasts in India, The Ranveer Show, which covers topics like health, spirituality, and lifestyle, also came exclusively to Spotify in June.\n<\/p>\n

\nIn Q2, Olivia Rodrigo\u2019s album, SOUR<\/i>, set the record for biggest streaming debut for any album on Spotify this year with over 63 million global first day streams. Other major releases in the quarter include BTS single, Butter,<\/i> Griff\u2019s Album, One Foot In Front Of The Other,<\/i> and Doja Cat\u2019s album, Planet Her. <\/i>Spotify also launched a new Fresh Finds marketing program to celebrate Indie artists in the US as well as expanding the playlist via localized editions in 13 territories around the world. Fresh Finds, which first launched in 2016, has playlisted over 25,000 artists and built a reputation among users and in the industry as the go-to destination to discover new Indie acts. In addition, of artists whose first editorial playlist is Fresh Finds, over 44% go on to be playlisted in another editorial property on Spotify.\n<\/p>\n

Two-Sided Marketplace<\/b><\/p>\n

\nWe continue to test Discovery Mode with a small set of labels and licensors including major labels, independent labels, and independent artist distributors. Thus far, artists with tracks in Discovery Mode have found over 40% more listeners on average compared to pre-Discovery Mode. Additionally, 44% of those listeners had never listened to the artist before. We are integrating feedback from our early partners with a broader rollout of Discovery Mode expected later this year with the main goal of facilitating more artist to fan connections.\n<\/p>\n

\nSponsored Recommendations (i.e. Marquee) continued to gain traction during the second quarter as we expanded into more international markets including Australia, Ireland, New Zealand, and the UK. We also rolled out new functionality for artist teams using the self-serve platform to target specific audience segments (casual listeners, lapsed listeners, and recently interested listeners) with their campaigns, a functionality previously only available to customers purchasing through our sales team.\n<\/p>\n

Free Cash Flow<\/b><\/p>\n

\nFree Cash Flow was \u20ac34 million in Q2, a \u20ac7 million increase Y\/Y primarily due to an increase in net income adjusted for non-cash items, partially offset by higher working capital needs arising from select licensor payments (delayed from Q1), podcast-related payments, and higher ad-receivables. Capital expenditures increased \u20ac6 million Y\/Y largely due to office build outs in LA, Berlin, and Miami.\n<\/p>\n

\nAt the end of Q2, we maintained a strong liquidity position with \u20ac3.1 billion in cash and cash equivalents, restricted cash, and short term investments.<\/p>\n

Q3 & Q4 2021 OUTLOOK<\/b><\/p>\n

\nThe following forward-looking statements reflect Spotify\u2019s expectations as of July 28, 2021 and are subject to substantial uncertainty. The estimates below utilize the same methodology we\u2019ve used in prior quarters with respect to our guidance and the potential range of outcomes. Given the extraordinary operating circumstances we currently face with respect to the impact of COVID-19, there is a greater likelihood of variances with respect to those ranges than typical quarters.\n<\/p>\n

\nQ3 2021 Guidance:\n<\/p>\n