Spotify Technology reported its first-ever annual profit on Tuesday, attributing the success to a combination of strong user growth, price hikes, and strategic cost-cutting efforts. The Swedish audio streaming giant also provided a positive quarterly forecast, projecting earnings above Wall Street’s expectations, which drove its shares up nearly 10% in early trading.
The company’s profit marks the successful culmination of months-long efforts to improve profitability through cost reductions, including layoffs, reduced marketing spending, and scaling back investments in podcasting and audio. In the upcoming quarter, Spotify expects operating income of 548 million euros ($566.2 million), surpassing analysts’ forecasts of 450.6 million euros.
Spotify’s projected monthly active users (MAU) of 678 million for the quarter is close to the analysts’ estimate of 679.4 million, while its forecast of adding 2 million new premium subscribers, bringing the total to 265 million, exceeds expectations.
CEO Daniel Ek shared plans to introduce more personalized offerings for subscribers, including a new premium tier targeted at “superfans of music,” which will feature additional benefits to cater to different user preferences. Ek emphasized that Spotify’s future growth would involve creating various products tailored to specific audiences, rather than offering a one-size-fits-all option.
Spotify’s fourth-quarter results were bolstered by record user additions, with 35 million new subscribers, bringing the total to 675 million MAUs, surpassing estimates. Premium subscribers grew by 11% to 263 million, exceeding expectations of 260 million. The company also focused on boosting video and podcast content to increase user engagement, with a successful expansion of its music video feature and enhancements for content creators.
Revenue for the fourth quarter rose 16% to 4.24 billion euros, surpassing analysts’ estimates of 4.19 billion euros, driven by subscriber growth and a 5% increase in average revenue per user. The company’s gross profit soared 40%, thanks to a 16% drop in operating expenses, and its gross profit margin increased to 32.2% from the previous quarter’s 31.1%.
