Spotify’s Profit Forecast Soars Amid Cost-Cutting Measures
The audio-streaming giant Spotify is bullish on its fourth-quarter profit, exceeding Wall Street estimates, thanks to aggressive cost-cutting measures and a strong subscriber growth forecast for the holiday season. As a result, its shares surged 7% in extended trading, adding to their more than 100% value increase this year.
Cost-Cutting Efforts Pay Off
Over the past year, Spotify has taken drastic measures to boost profitability, including layoffs, podcast pullbacks, and marketing spend reductions. These efforts have been supplemented by strategic price hikes in the US market, capitalizing on demand for premium products.
Forecast Exceeds Expectations
Spotify predicts an operating income of €481 million ($509.76 million) in the fourth quarter, surpassing the LSEG-compiled average analysts’ estimate of €445.7 million. The company also forecasts monthly active users (MAUs) of 665 million, exceeding estimates of 661 million.
Premium Subscribers on the Rise
Spotify expects to add around 8 million premium subscribers in the quarter, taking the total to 260 million. This growth is attributed to the company’s focus on adding more premium features to attract users. In September, Spotify expanded its AI-powered playlist creation tool to four new markets, including the US, contributing to a 12% rise in premium subscribers.
Revenue Growth Slows
While Spotify’s revenue rose 19% to €3.99 billion in the third quarter, it fell short of estimates of €4.02 billion. The weakness in the digital advertising market and a strong dollar are expected to weigh on its fourth-quarter revenue, forecasted at €4.1 billion.
Investing in Ad Industry Shift
CEO Daniel Ek acknowledges the pressure on the ad industry, which is shifting from brand spend to automation and direct spend. Spotify is investing heavily in this area to stay ahead of the curve. The company’s gross profit jumped 40% to €1.24 billion in the third quarter, beating estimates of €1.22 billion.
Gross Profit Margin Expands
Spotify’s gross profit margin increased to 31.1% from 29.2% in the prior quarter, demonstrating the company’s commitment to improving profitability. As CEO Ek notes, “We’re on track for our full-year profitability, which is a very important milestone that investors have been waiting on for us for a long time.”
Leave a Reply