Now not that the quarter’s MAU tally used to be a surprise. Spotify pointedly acknowledged in its Q4 2020 earnings that 2021 steering would be tough to pin down attributable to “big uncertainty.” Buyers didn’t wish to listen to that, both: Spotify’s fragment tag fell 9% that day. It goes to point to you would possibly perchance presumably’t please every person.
The essence of Q2 2021 earnings will likely be boiled down to these six issues.
MAUs
The standout metric in Spotify’s Q2 earnings used to be month-to-month common customers, which grew 9 million from 356 to 365 million — with 7 million of those coming from contemporary subscribers. Even though paid subs agree with been on the high discontinue of steering, advert-supported listeners agree with been below expectations — and the identical aspect took put in the first quarter. This is also interpreted in a couple suggestions. On one hand, free listeners are price a chunk of subscribers and so a high ratio of subscribers to MAUs is fascinating. On the opposite hand, fewer free listeners right this moment time can also mean Spotify has fewer listeners to convert to paying subscribers in the long trip. MAU growth used to be additionally extinct in Q1, suggesting traders have a tendency to agree with the 2d interpretation. MAU shortfalls in India, Brazil and parts of Southeast Asia and slower adoption rates in some newly launched markets. “All of those areas agree with been tough hit by COVID,” acknowledged CEO Daniel Ek, and Spotify “lost about a quarter of growth between Q1 and Q2.”
Engagement!
Ek acknowledged Spotify’s approach “is largely centered on increasing engagement.” Extra engagement equals extra subscribers that stick with the service longer (resulting in lower churn). Sadly, Spotify doesn’t originate metrics for engagement such as listening hours per user or time spent listening per session. But Ek gives some proof that engagement is increasing. Ek acknowledged Spotify released “extra than 20 fundamental contemporary sides over the old few months,” from collaborative paying attention to Greenroom, Spotify’s formula to Clubhouse. Spotify additionally wants to procure engagement between listeners and creators by launching tools that raise the probability of creators from 8 million to 50 million and produce bonds between them. Ek added that engagement with podcasts (which quantity 2.9 million, up from 2.6 million in Q1) used to be up 95% y/y and up 30% on a per-user basis. One has to surprise how long Spotify can withhold this engagement arms trip with a dizzying toddle of contemporary characteristic launches, investments in podcasts and acquisitions.
Raising Prices
Spotify’s tag hikes in 42 markets agree with been a hot topic in the Q1 earnings call and Ek addressed the realm as soon as more on Wednesday. The increases agree with been modest at $1 in the U.S. family concept, as an illustration, and a related quantity for 3 good deal plans in the United Kingdom. The corporate is happy elevating prices in 42 markets because engagement has remained high and indicators a “very actual buyer nasty,” acknowledged Ek, and explains “why subscriber growth has been so stable as effectively.” That means Spotify can also hesitate to prefer prices as soon as more if engagement slips. So, as soon as more, engagement is a fundamental.
Margins
Even supposing Spotify specializes in engagement and listener growth, it doesn’t fail to identify key financial metrics such as impolite margin. Q2’s improvement in impolite margin used to be largely a mirage however soundless extraordinary. Unsuitable margin shows how worthy revenue is left over after paying royalties and other price of sales. Spotify had on its books accrued publishing royalties however in Q2 sure to reverse one of the accruals, thus reducing royalties and lengthening revenue in the quarter. With the assistance of that one-time tournament, impolite margin improved from 25.5% in Q1 to 28.4% in Q2. Removing the one-time originate of accrued royalties, impolite margin would agree with been 26.5% — lower however soundless sooner than the 23.6 to 25.6% steering. (Unsuitable margin used to be additionally 26.5% in Q4 2020 and had averaged 25.6% over the old 8 quarters.) Spotify acknowledged Q2 margins agree with been additionally boosted by podcast revenue and the 2-sided market.
ARPU and Churn
ARPU and churn customarily circulation in reverse instructions — and can procure obvious outcomes. As Billboard wrote in June, falling churn improves a subscriber’s lifetime price even though ARPU falls. It be considerable that both moved in the identical direction in Q2. ARPU has fallen 11.7% from 4.86 euros in Q2 2019 to 4.12 euros in Q1. But in Q2, ARPU rose to 4.29 euros, the finest ticket since 4.41 euros in Q2 2020. This took put because Spotify claims to agree with efficiently raised prices in 40 markets in Q1 with out hurting churn or engagement. Also, contemporary, sticky product sides and family plans helped lower churn by 23 basis points (0.23 share points y/y and “down modestly” from Q1).
The Long Game
Moderately than address Spotify’s growth in any one- or two-quarter span, capture into account whether or no longer the put it’s headed in the subsequent two or three years. Yr-over-365 days growth in 2021 is misleading because Spotify exceeded expectations for the period of the first 365 days of the pandemic, Ek acknowledged. “We’re soundless heading in the precise direction to outpacing the everyday growth from the previous two years in this 365 days. We’re apt evaluating it to an unbelievable 2020.” That acknowledged, Spotify’s plot of turning into the main audio platform — song and podcasts — is an increasing selection of pressured by predominant gamers such as Apple Song, Amazon, iHeartRadio and SiriusXM. Ek’s plot of reaching 2 billion customers is perchance no longer easy.
