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Spotify, the digital music streaming service home to millions of songs, posts a profit this quarter, says a recent quarterly shareholder letter. This is just the third time the platform will be reporting a profit, and the first time this year.
During the last quarter of 2018, Spotify managed to make its operating income, net income, and free cash flow all positive. The first time the company announced that they're on the black was during Q3 2018, but only technically because of a one-time tax windfall that helped the company become profitable.
Their most recent financial report is more optimistic. It looks like years of investment will finally make Spotify financially stable.
User Growth, Premium Subscriptions
The biggest contributing factor to Spotify's profitability is its rapidly increasing user base. From just 207 million monthly active users (MAU) in Q4 2018, the platform now has 248 MAU. Of these users, almost half are paying a monthly subscription fee for Spotify Premium.
Subscription fees make up a bulk of Spotify's revenue. 90% of the revenue the company reported for Q3 2018 comes from premium membership, with the rest coming from ads.
Although Spotify is right on track on their projections in MAU, they are still at least 4 million short from their expected Premium subscribers. By the end of the year, Spotify aims to achieve 245–265 million MAU, with 117–127 million paying for their premium service.
Latin America and Southeast Asian regions contributed to the increase in MAU. In both these regions, MAU numbers have grown exponentially.
Spotify cites continuous product innovation in helping them retain new users. Meanwhile, different promotions of their premium service helped increase subscriber numbers—it includes the family plan and the new "Duo" plan that they've piloted on select areas in September.
These plans provided cheaper per head costs for users to gain access to premium service, which turns out to be very effective.
Spotify is still most popular in Europe, with 35% of active users residing within the region. 27% of users come from North America, and 22% come from Latin America. The rest is divided amongst the other regions in the world.
Podcasts Investments Paying Off
Spotify's investments in podcasting have also started paying off. Spotify CEO Daniel Ek says that "Our podcast users spend almost twice the time on the platform, and spend even more time listening to music."
Spotify is now rivaling Apple as the leader in podcasting platforms. Spotify's premium subscribers are almost double of Apple Music's, and the platform's acquisition of more exclusive content will help drive more users to Spotify.
Podcasters also have good reason to use Spotify. Two key innovations late last year make the platform attractive to producers, including podcasters.
Last October, Spotify released Spotify for Podcasters, which made it easy for podcasters to bring their broadcasts to the platform.
One month later, Spotify Publishing Analytics went on beta. This service gave publishers never-before-seen statistics of their content performance, a first for digital music streaming services.
The Future of Spotify
For the Q4 of 2019, Spotify is aiming to reach 265 million MAU and 123 million premium subscribers. The company is expecting continued profits for the quarter, which would mark the first time they'd be out of the red for two consecutive quarters in a row.
Meanwhile, a U.S. bill is seeking to make digital streaming services—Spotify included—to issue emergency warning broadcasts. How this will affect the business is still unknown, although it's highly unlikely that the platform will lose any subscribers or users for complying.
