Spotify posts surprise profit, announces two acquisitions

Music streaming service Spotify posted a maiden profit on Wednesday as it announced two podcast acquisitions and promised further deals to come.

The Stockholm-based business, which is listed in New York, saw fourth-quarter revenues rise 30% to €1.5bn. Operating profits were €94m against a €6m loss in the previous quarter; most analysts had expected a loss.

Monthly active users were also above expectations, at 207m, a 29% year-on-year rise on improved customer retention rates. Spotify had predicted MAUs of between 199m and 206m for the quarter.

Spotify – which is targeting growth over profitability – said it expected the first quarter of 2019 to revert to the black, however, with a predicted operating loss of between €50m and €120m. Much of the fourth-quarter profit was attributed to a fall in the share price which had reduced some costs, such as taxes on stock options.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “Although there are some one-offs flattering this quarter, today still represents an important milestone. Spotify’s core business and geographies are looking increasingly comfortable, and while expansion into another 13 countries and development of advertising and artist tools is holding back the bottom line, it’s not a long-term problem.”

Spotify also announced on Wednesday that it was buying podcast specialists Gimlet Media and Anchor. Financial terms were undisclosed. Co-founder and chief executive Daniel Ek said the two deals would “meaningfully accelerate our path to becoming the world’s leading audio platform”.

Spotify, which operates in 78 countries, is seeking out more deals beyond Gimlet and Anchor, however. It said: “We want to acquire more and have line-of-sight on total spend of $400m-$500m on multiple acquisitions in 2019. Growing podcast listening on Spotify is an important strategy for driving top-of-funnel growth, increased user engagement, lower churn, faster revenue growth and higher margins.”

Hyett said that the move into podcasts, an increasingly popular part of the audio market, “made sense”, adding: “The group clearly has some grand ambitions. It wouldn’t be a total surprise to see audiobooks featuring on the shopping list somewhere, as it looks to do battle with Amazon’s Audible.”

Spotify said it was pencilling in MAU of between 245m and 265m for 2019, with total revenues coming in between €6.35bn and €6.8bn. The operating loss was expected to be in the region of €200m to €360m.