Spotify returns to profitability as operating losses decrease by 154%

Company celebrates second largest Q3 as revenue continues to climb

Audio giant Spotify has once again returned to being a profitable business, according to its latest financial report, increasing its revenue by 11% year on year and reducing operating losses by 154% since the previous quarter.

The total revenue for the company is now at €3.4 billion (£2.97 billion) for this year, which was largely attributed to year-on-year growth in monthly active users of 26% (up to 574 million) and 16% for premium subscribers (up to 226 million), as well as the early effects of its recent subscription price increases. The company announced in its Q2 report that premium prices would be increasing in a number of markets including most of Europe and North America. 

Spotify also grew its ad-supported revenue by 16% year on year, with the company having relinquished exclusivity over a proportion of its hit podcasts, including Anything Goes with Emma Chamberlain and Case 63, to grow its ad sales. The increase in gross margin, which was at 26.4% this quarter, was also partially attributed to improvements in podcast trends as well as growth in marketplace activity. The increases represent the “second-largest third quarter” for the company, according to its chief executive officer, Daniel Ek. 

In addition to increasing its revenue, Spotify massively reduced its operating loss income by 154% since last quarter - now at €32 (£27.9) million - although this was expected, as last quarter’s operating loss was a result of cost reduction measures that the company implemented in Q2 2023. 

Spotify ended its multi-year exclusive contract with Meghan Markle and Prince Harry, and downsized its podcast division with a round of layoffs affecting 2% of its global workforce in June. As a result, €53 (£45) million went to employee severance charges, content asset write-offs and contract termination costs related to podcast operations. 

Going into Q4, the audio giant expects to continue growing its total revenue to hit a projected €3.7 (£3.2) billion, as well as reaching over 600 million monthly active users, which will be a new milestone for the company. The company recently introduced a new feature on the platform which allows monthly subscribers in the UK and Australia access to 15 hours of free listening to audiobooks per month and is planning to roll it out more widely in the future.

“The essence of our business model is to deliver unparalleled value to our user base through an ever improving consumer and creator experience,” said Ek. “This is coupled with every now and then expanding our ecosystem through new verticals to deliver even more value.”

“And this of course nicely segues into our groundbreaking audiobooks offering for premium subscribers we announced a few weeks ago. Not only will our expansion into this category supercharge the growth of the audiobooks format, but it also will drive engagement and reduce churn, which further enhances our value proposition.” 

Although Spotify has cut back on some of its podcast investments and has revamped its podcast strategy, it is continuing to develop new features for podcasters, including new customisation and impression tools for Spotify for Podcasters users and a pilot version of AI-powered translations for podcasts which retain the host’s voice. Spotify is also continuing to invest in talent-driven podcast originals, such as its upcoming series with comedian and late night TV host Trevor Noah.