Spotify ends 2018 in the black with Q4 2018 outperforming expectations and delivering operating income, net income and free cash flow numbers which were all positive. The number of monthly active users (MAU) grew 29% year on year to 207 million which was above expectations mainly due to improved subscriber retention and strong growth in Latin America and emerging regions. Despite improved performance in every area and strong forecast growth in 2019 the company is still predicting making a loss of between €200-360 million next year.
During Q4 Spotify expanded from 65 to 78 countries as they launched their service across 13 countries in the Middle East and North Africa in mid-November 2018. Listening reached a milestone of more than 15 billion hours of content during the quarter.
Premium subscribers reached 96 million, up 36% year on year due to Spotify’s Google Home promotion and annual Holiday campaign. The Google Home promotion was the first ever hardware bundle offering master account holders of their Family Plan in the US a Google Home Mini speaker free of charge. The Holiday conversion promotion added almost 7 million subscribers over its 6-week period including a single day record of almost 500,000.
In December, the annual Wrapped Holiday brand campaign where existing users are able to explore stats about their listening habits throughout the year saw the highest traffic ever to the Wrapped site with 28 million visitors in just one week (up from 20 million last year). The Holiday campaign became the #1 trending topic on Twitter globally and generated over 5 billion streams of the ‘Your Top Songs 2018’ playlist, now the fastest growing personalized playlist in Spotify history.
Growth in both Family and Student plans was healthy, and churn continued to trend down, improving by 0.3% year on year.
Financial Results
Total Q4 revenue was €1,495 million, up 30% year on year with Premium contributing €1,320 million. Average revenue per user (‘ARPU’) was €4.89 in Q4 representing a 7% year on year decline largely driven by an increasing mix of Family and Student plans. Lower ARPU is expected in future as Spotify move into geographies with less advanced economies.
Ad-Supported revenue of €175 million grew 34% in Q4 compared to 30% growth in Q3. Revenue from North America continued to provide strong growth accelerating to 41% year on year.
Gross Margin was 26.7% in Q4, above the high end of predictions (24-26%).
Operating expenses of €305 million in Q4 were down 17% year on year, resulting in an Operating Profit of €94 million. This is Spotify’s first ever quarterly Operating Profit.
Streaming numbers
The company revealed that more than 300,000 creators and their teams use the Spotify for Artists platform on a monthly basis.
Spotify for Podcasters launched on 3rd October 2018 now has more than 10,000 podcasters using this tool on a monthly basis to gain deeper insight into their audience. Today, there are more than 185,000 podcast titles available and consumption continues to grow rapidly. In Q4 the streamer had 14 titles exclusive to Spotify including the 2nd season of Crimetown, The Rewind with Guy Raz, and the Dissect Mini Series hosted by Lauryn Hill.
Spotify Publishing Analytics in Beta launched on 8th November 2018 was the first analytics tool from a music streaming service built specifically for publishers. The tool gives publishers daily streaming statistics for the works and recordings they have identified, including playlist performance, as well as the ability to view data for each of the songwriters on their roster. More than 1,000 users from music publishers around the world requested access to the beta version of the site within the first two weeks of launch, and the company has plans to expand the offering throughout 2019.
At the end of 2018 Spotify had 4,165 full-time employees and contractors globally with hiring in Research & Development up more than 40%.
Growth through Acquisition
Spotify announced that it had acquired Gimlet Media and Anchor to enhance its podcasting presence and said that it had set aside $400-$500M to spend on further acquisitions in 2019.
The prospects for 2019
Spotify is forecasting the following performance (figures compared to 2018):
Total Monthly Active Users (‘MAU’): 245-265 million, up 18-28%
Total Premium Subscribers: 117-127 million, up 21-32%
Total Revenue: €6.35-€6.8 billion, up 21-29%
Gross Margin: 22.0-25.0%
Operating Profit/Loss: €(200)-(€360) million
For those interested in seeing the full set of accounts can find them here.
