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Ad Dollars Grow Faster Than Subscriber Revenue.

Spotify is killing off its Car Thing listening device targeting drivers. Spotify also says it had 433 million total monthly active users during the second quarter and at the end of Q2 it had 4.4 million podcasts on the platform. Spotify reported second quarter revenue of $2.9 billion but it remained in the red. Here are six takeaways from Spotify’s latest update to investors –

Car Thing No Longer A Thing

Spotify’s foray into tech hardware has come to an end. The company has decided to end production and sales of its Car Thing device which plugs into a car’s sound system offering a digital listening option for cars that do not have an infotainment system.

Car Thing was released on a limited basis in April 2021 after nearly two years of development. It beta-launched last October before becoming widely available in February. Spotify has not released any sales figures for Car Thing, which retailed for $89.99.

“We tested a number of price points, and we frankly haven’t seen the value at the higher prices that would make the current product financially viable,” said CFO Paul Vogel. The move resulted in a one-time write-down of $31 million tied to closing down the Car Thing business.

Record Q2 Growth In User Numbers

Spotify says its monthly active users grew 19% year over year during the second quarter to 433 million. “We had another very strong quarter in Q2, building on the momentum and success we’ve now seen for four consecutive quarters,” said CEO Daniel Ek. The gain of 19 million – about five million more than forecast -- was its largest ever Q2 growth rate which it says came largely outside the U.S. market.

Podcast User Numbers Rising

Despite Spotify releasing a 36-page report about Q2, podcast numbers were scarce. Spotify did say it had 4.4 million podcasts on the platform at the end of second quarter and that the number of monthly active users who listened to a podcast grew double-digits from a year ago. It did not say what that number is, however. Spotify also said its per user podcast consumption rates continued to rise, but it also did not release that number.

“We’ve seen strong growth on the podcasting side,” said Vogel. “We’re seeing increased numbers of advertisers and increased demand. We think it’s becoming a core buy for people.”

Beyond just podcasting, Ek said that audio advertising stands to gain share as marketers tap into it to reach consumers on the go. “It’s quite obvious that audio ads are going to be a very dominant driver for reaching people while they’re in the car,” he said.

Ad Dollars Grow Faster Than Subscriber Revenue

Spotify’s second quarter revenue was $2.9 billion, which was a 23% increase from a year ago. Subscriber revenue still makes up the vast majority of its revenue – it increased 22% to $2.5 billion during the quarter – but advertising sales grew at a faster rate. Spotify’s ad revenue totaled $366 million during second quarter, a 31% increase from last year, suggesting that despite economic uncertainty, advertisers continue to pour money into audio. Advertising also reached an all-time high as percent of revenue, making up 13% of the company’s total revenue during Q2.

Losses for the quarter totaled $196 million.

Spotify says its music business had double-digit growth year over year, led by double-digit growth in CPMs. Podcast revenue grew in the double-digit range. Vogel said they hope to grow their ad business by increasing user engagement.

‘Substantial Uncertainty’ About Global Economy

Facing continued questions about the global economy, Spotify says it is taking a closer look at marketing activity facing what it calls “substantial uncertainty” about the coming months. It also confirmed plans first announced last month that it will cut its planned hiring during the second half of the year by 25% as it monitors macroeconomic conditions. At the end of Q2, its workforce consisted of 9,058 full-time employees worldwide. Spotify also notes its operating expenses jumped 38% during second quarter, in part from the recent acquisitions.

Users Growing; Ad Market Softening

The revenue outlook may be cloudy, but Spotify executives said the picture is clear on users. It expects to add 17 million new monthly active users during the third quarter, which would bring its tally to 450 million worldwide.

“To date, we have seen no real impact on our user or subscriber outlook,” said Vogel. Spotify does not release user churn figures, but he said they continue to move lower. “For advertising, we did see some softening in trends over the last few weeks of June,” Vogel said. “But we still expect solid growth in Q3 albeit slower than we might have forecast earlier in the year.”

Spotify forecasts revenue will top $3 billion while forecasting a $221 million operating loss for the quarter as profit margins continue to be weighed down by its investment in non-music programming.

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