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Spotify Continues Losing Money, Despite Revenue Growth In Q2

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NEW YORK (CelebrityAccess) — On July 26th, streaming music giant Spotify revealed their financial results for the second quarter of 2018, reporting narrowing losses for the quarter.

According to Spotify, total revenue for the quarter was €1,273 million, up 26% from 2017 and 34% after adjusting for flucations in currency. In the same period, revenue from premium subscribers was €1,150 million, up by 27%.

Spotify also reported gross margins of 25.8%, which was at the high end of the range of 24-26% the company presented in earlier guiance figures for the quarter.

Still, Spotify is bleeding money, and they reported an operating loss of €90 million or approximately 7% for the quarter. However, that figure was impacted by a €30 million cash expense related to their publi listing in March, and and €32 million in options due to their strong stock performance.

For the quarter, Spotify reported that their Monthly Active Users (MAU) was up 30% from the previous year, and noted that growth in emerging markets outpaced growth in established markets where saturation and competition were factors.

MAU breakdowns include a 23% in ad-supported streaming over the same period in 2017, while Spotify’s premium subscriber base grew to 83 million, up 40% year-over-year.

Spotify said the primary driver of growth was their family plan, and to the extension of their Spotify + Hulu bundle to Standard $9.99 Premium subscribers in the US, following the early success of the Spotify Student + Hulu bundle launched last fall.

However, the promotions have had an impact on Spotify’s bottom line. During Q2, average revenue per user declined to €4.89, down by about 12%, but up by 4% from last quarter, which Spotify attributed to impacts of seasonal promotions.

Spotify says the lion’s share (40%) of their subscribers are in Europe, with an additional 31% from North America. Latin America accounts for another 20% while the remaining 9% are from other parts of the world.

For Q3, Spotify predicts that their MAU will continue to grow, and provided guidance projecting improvement of 25-29%. They project revenue growth of €1.2-€1.4 billion, up by an estimated 17-36% and an operating loss of €10-€90 million for Q3.

In a conference call, Spotify boss Daniel Ek took issue with a recent report about Spotify’s “churn” or the rate that premium users unsubscribe. An analyst report had previously suggested that the churn rate for the streamer was as high as 16% but, according to Ek, it’s closer to 4% in the US and dropping worldwide.

Ek also countered fears in the music community that Spotify’s growth may be fueled by smaller payouts to rightsholders and instead said that growth would come from increasing subscribers and advertising revenue.

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