Spotify packed in a strong end to the year roiled by the pandemic, topping forecasts for Premium subscribers to reach 155 million (up 24%) in the fourth quarter of 2020 — adding a record 30 million for the year. The audio streamer’s total users grew 27%, to 345 million in Q4, after netting 74 million in 2020, also a record.
The company touted its podcast strategy and reiterated its belief that the audio-programming foray is paying back, despite some skeptics on Wall Street. As of Q4, Spotify had 2.2 million podcasts on the platform (up from 1.9 million podcasts the prior quarter and up more than threefold year over year). The company said 25% of its total user base engaged with podcast content in the quarter (up from 22% in Q3 and 16% in the fourth quarter of 2019). In addition, podcast consumption hours in Q4 nearly doubled year-over-year.
“We have increasing conviction in the causal relationship between the growth in podcast consumption driving higher [long-term value] and retention among our user base,” Spotify said in its Q4 shareholder letter.
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Spotify exceeded Q4 financial targets for revenue with total sales up 24% (excluding the impact of foreign exchange rates) and gross margin. The company saw particular strength in ad sales, which grew 39% in the quarter (on a constant-currency basis). Operating expenses increased 17% in Q4 on higher stock-based compensation costs after Spotify’s share price surged during the quarter. Gross income rose 21% in the quarter, while net loss narrowed to €125 million versus €209 million in Q4 2019.
“Despite the global uncertainty of 2020, it was a remarkable year for Spotify,” Spotify CEO and founder Daniel Ek said in announcing the results. “Following a strong Q2 and Q3, Q4 met or exceeded our guidance by nearly every metric.”
However, shares of Spotify fell more than 7% in premarket trading, with a forecast for 2021 that was lighter on the paid subscriber side than investors anticipated.
For Q1 2021, the company is projecting total users of 354 million-364 million and paid subscribers of 155 million-158 million — net zero growth on the low end of the guidance for Premium, coming after price increases in several markets. It projected first-quarter revenue of €1.99 billion-€2.19 billion, up 7.7%-18.5% compared with Q1 a year ago.
For the full year, Spotify expects to reach total MAUs of between 407 million-427 million (up 18%-24%) and total Premium subscribers of 172 million-184 million (up 11%-19%).
Spotify noted, “Given the extraordinary operating circumstances we currently face with respect to the impact of COVID-19, there is a greater likelihood of variances within those ranges than typical quarters.”
On the ad-sales front, Spotify said podcast and ad studio segments both more than doubled revenue year over year. The company said it had “healthy double-digit CPM gains,” along with contributions from Bill Simmons’ Ringer, “The Joe Rogan Experience” and the $235 million acquisition of podcast ad-tech company Megaphone, which closed Dec. 8.
In December, “The Joe Rogan Experience” became exclusive to Spotify — and as of the end of 2020 was the No. 1 podcast on the platform in 17 markets, despite (or because of) controversies surrounding Rogan’s show. “While it remains early days, we are very encouraged by the performance of this content since its arrival on our platform, as it has stimulated new user additions, activated first-time podcast listeners, and driven favorable engagement trends, including vodcast consumption,” Spotify said.
Also last month, Spotify announced a new multiyear deal with Prince Harry and Meghan Markle’s Archewell Audio to produce exclusive podcasts, with a full-scale launch of shows from the royal couple coming in 2021.