Music streaming giant Spotify posted a surprising profit for the third quarter on Tuesday, thanks to a jump in subscribers, spending cuts and a boost from recent price hikes. But its U.S.-listed shares dipped in premarket trading, likely thanks to a weaker-than-expected revenue forecast for the current quarter.
The Swedish company reported a profit of $68.8 million, or 35 cents per share, for the three months ended Sept. 30, reversing a year-ago loss of $161.5 million, or 96 cents per share. The results represent Spotify’s first quarterly profit since the start of last year.
The results far outpaced the loss of 21 cents per share forecast by analysts polled by Zacks Investment Research.
Revenue came in at $3.56 billion, up from $2.95 billion a year ago, but falling short of the $3.64 billion analysts were expecting.
Spotify reported a 26% leap in subscribers to 574 million from 456 million a year ago. That was a gain of 23 million, up 4%, from the June quarter, topping the company’s prior predictions by 2 million. The company said it was “our second largest Q3 net addition performance in our history.”
Premium subscribers rose by 16% year-over-year to 226 million, which topped company forecasts by 2 million. Premium revenue rose 10% year over year to $3.1 billion, though average revenue per user dipped 6% to $4.59, which it attributed to discount promotions in some markets, with some offsets from the 10% price increase that kicked in late in the quarter.
The company said growth in premium was particularly strong in North America and Latin America, and pointed to a strong promotional campaign during the quarter for driving the gains, which it noted were better than expected in markets that saw price increases.
Ad-supported revenue jumped 16% year over year to $473 million, reflecting double-digit growth across all regions, the company said. Music ad revenue leaped 20%, while podcast ad revenue growth “remained in the healthy double-digit range,” the company said.
Spotify reported an operating profit of $33.9 million, and said operating expenses dropped 13% from last year thanks to lower marketing expenses and a drop in the number of workers. Spotify laid off hundreds of employees this year, including major cuts of 6% of its staffers in January and 200 more gone in June as its podcast division struggled.
The company said it saw “improvement in podcast trends” in the September quarter after it cut back spending in the division and slimmed down its lineup.
Earlier this month, the company announced plans to introduce a new “superpremium” tier that comes with high-definition audio, and began introducing audiobooks to subscribers in the U.K. and Australia. That is expected to reach the U.S. before the end of the year.
Shares declined about 2.5% in premarket trading, likely because the company’s forecast was disappointing. Spotify said it expects revenue for the fourth quarter of $3.92 billion, short of the $4 billion predicted by Zacks’ analysts. It said it expects to add about 27 million subscribers, reaching for 601 million total, including 235 million premium subscribers, or about 9 million more paying customers.
