Spotify reduces operating loss by 32% in Q1, months after lay-offs

CEO Daniel Ek says company will no longer be “overpaying or over-investing”

Spotify’s operating losses have been significantly reduced, the company has revealed as part of its Q1 2023 financial results, going from a £200 million loss in the previous quarter to £138 million. 

During an earnings call with investors, Spotify CEO Daniel Ek said that this is the company’s “strongest Q1 since going public” with a number of milestones achieved, including surpassing 500 million monthly active users. Spotify also reported that it grew its podcast revenue by nearly 20% year-on-year, driven by original and exclusive podcasts. 

The report comes months after the audio giant announced that it was laying off 6% of its staff at the end of January, in an effort to reduce costs and improve efficiency within the business due to over-investment - which the company later blamed on podcast expenditures in its Q4 2022 report. 

According to the report, other factors that also led to a reduced operating loss included lower marketing and legal costs. Expense growth was also affected by severance charges due to workforce reductions and payroll taxes in select countries. Spotify also made a number of restructures in its management including appointing chief R&D officer Gustav Söderström to chief product officer and Alex Norström as chief business officer.

“There’s no question that we have become leaner in the last 6 months, but this progress is still early in its reflection on our financials,” said Ek. “The actions we've taken, coupled with other opportunities to reduce spending in areas like marketing, content production and real estate, should lead to a steady progression of key metrics throughout the year... all of which makes me even more bullish about the remainder of 2023 and beyond.”

Heavy podcast investments that Spotify announced in 2022 included exclusivity deals with big-name celebrities like Emma Chamberlain, Meghan Markle, and Kim Kardashian and a number of acquisitions of other podcast platforms worth around €291m, including podcast analytics platforms Podsights and Chartable. Spotify also previously signed a multi-year exclusivity deal with Joe Rogan in 2021 worth $200 million.

“You’re right in calling out the overpaying and over-investing, and I can start off by saying that we’re not going to do that,” Ek admitted during the earnings call. “We’re going to be very diligent in how we invest in future content deals, and the ones that are performing, we will renew, and the ones that aren’t performing, we’ll obviously look at them on a case-by-case basis on the relative value. We have very sophisticated tools for measuring impact on the platform.”

Spotify previously cancelled 11 original podcasts in October 2022 from two podcast networks that it acquired - Parcast and Gimlet - due to underperformance, which the unions of the networks later blamed on Spotify’s decision to make them exclusive. However, some Gimlet original podcasts will now be made available across all podcast platforms as Spotify announced in April that it will be relinquishing its exclusivity in order to grow its ad sales and broaden its audience. 

Despite stating that Spotify would be tightening its spending budget moving forward in Q4 2022, the audio giant made a number of podcast announcements at its annual Stream On event in March this year which included new creator tools for podcasters, partnerships with platforms like Patreon and Netflix, and exclusive content partnerships with creators like Markiplier and The Comment Section podcast’s Drew Afuala.

However, Ek made it clear in the prepared remarks that these investments were built over a 12 to 18-month period - or sometimes even longer - and that the company is seeing positive growth in subscribers and monthly active users as a result of them, adding that Spotify will continue to make such “strategic investments”.

“More often than not, their impact is gradual and takes shape over several quarters….or sometimes even years,” said Ek. “And while we really can’t always anticipate when the benefits will materialise, we do know that our growth is a consequence of our relentless pursuit of learning, iterating and improving.”