Every Day 'Looks Like the Weekend,' Says Spotify; Drive Time Listening Falls, Consoles Up
Spotify usage shifted amid shelter-in-place directives, with in-car, web-based and wearables listening down as much as double digit percentages, while listening surged via smart TVs and game consoles, said its Q1 shareholder letter Wednesday. Consoles were a top-three platform in hours listened among advertising-supported users. Connected device usage rose 40%-plus among global ad-supported monthly active users (MAUs), it said Wednesday.
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Q1 revenue rose 22% year on year, ad-supported up 17% but falling 32% sequentially. On-demand revenue grew 31%. Total revenue was $2 billion, including $1.8 billion from premium. It reported 286 million active users, up 31%.
Spotify operated with “very little disruption” in its business during the quarter, and all employees are working remotely in accordance with work-from-home orders. The company slowed hiring for the rest of 2020.
Beginning late February, Spotify had COVID-19-related changes in customer engagement, with MAUs and subscriptions holding steady but a “notable decline” in daily active users and consumption, particularly in Italy and Spain, the company said. Listening hours began to rebound in the past few weeks. MAUs grew 31% to 286 million, in line with expectations, said the company.
Morning routines have changed significantly, management said: "Every day now looks like the weekend," with commuting trends upended. Audio took on a greater role in managing stress and anxiety that many are feeling during the pandemic, it said. Searches are up for music identified by “chill” and “instrumental”; consumption of podcasts on wellness and meditation is also up, it said.
Spotify expects an acceleration in switchers from linear radio to streaming music due to the pandemic, said CEO Daniel Ek on a Wednesday earnings call, citing the “billions” of users who listen to terrestrial radio in cars. “The 20-year trend is that everything linear dies and on-demand wins.” Shifts in listening behavior from car to home resulted in a discovery of music streaming, he said.
An “obvious overhang” for Spotify is competition from streaming platforms “not necessarily focused on ever becoming profitable,” Pivotal Research Group analyst Jeffrey Wlodarczak wrote investors Wednesday. Of more concern are the four music labels that control more than 90% of Spotify’s music catalog, he said, comparing the situation to pay-TV distributor margins that “collapsed from 85% to 15%.” As growth in pay-TV subscribers slowed, media players pushed through price hikes for content, he noted. The streaming service renewed its global licensing deal with Warner Music Group April 1, expanding to additional markets, Ek said.
Success from podcasts or other nonmusic ventures will “inevitably be clawed back by the record labels in higher fees,” said the analyst. Ek downplayed that possibility in Q&A Wednesday, saying Spotify’s growth strategy hinges on gaining subscribers from radio.
On Q2, Spotify sees total MAUs of 289-299 million and 133-138 million premium subscribers. It projects revenue of $1.9 billion-$2.1 billion. Shares closed 11.4% higher at $155.78.