Audio giant Spotify revealed that its operating loss income had increased by €224m (£198m) by the end of last year, compared to €7m (£6.2m) in Q4 2021, largely due to heavy podcast investments in the past year.
The operating loss in the Q4 2022 Update report was, however, significantly lower than predicted in the last quarter (€300m) and gross margin was 0.8% higher than the predicted 24.5% due to “lower than expected” spend on new podcast content. The gross margin is, however, down by 118 bps year-on-year due to offset by new podcast and product investments,
Despite the loss, Spotify CEO Daniel Ek’s answer to whether he believed these investments were a mistake was “No and yes” at the Q4 earnings conference, referencing the recent Spotify cost-cuts which resulted in laying off 6% of employees in the company on a global level. He also added that he still believes it was the right call and would do it all over again.
“My expectation was never that these investments would have great impact in the short term, yet they have,” said Ek. “But more importantly for our shareowners, I fully expect that they will continue to pay dividends in the months and years to come.
“In hindsight, I probably got a little carried away and overinvested relative to the uncertainty we saw shaping up in the market.”
Ek also added that Spotify is planning to tighten its spending budget moving forward in order to become “more efficient” but clarified that it doesn’t mean the company will be calling off all new investment opportunities, including ones in podcasting and audiobooks. Just this morning, Spotify announced an exclusive brand-new podcast deal with award-winning journalist Louis Theroux.
Other podcast investments that Spotify had made in 2022 include the signing of big-name personalities to host exclusive podcasts on the platform such as Emma Chamberlain, Meghan Markle, Kim Kardashian and a $200m deal with Joe Rogan. Investments also include Spotify’s acquisition of a number of podcast platforms last year worth around €291m, including podcast analytics platforms Podsights and Chartable.
Podcasting also played a role in growing Spotify’s ad-supported revenue in Q4 2022 which had an overall increase of 14% year-on-year (€449m). Podcasting revenue continued to grow in double digits since the last quarter, currently in the mid 30% range year-on-year.
“Looking ahead, we are pleased with our momentum into 2023,” said Spotify CFO Paul Vogel. “When combined with our increased focus on speed and efficiency, we are confident in our ability to continue our double digit top-line trajectory in conjunction with improvements in profitability.”
