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Spotify gains more subscribers than expected in the second quarter

Music service defies Netflix-triggered worries about slack in the streaming industry

•• 2 Min
Spotify gains more subscribers than expected in the second quarter

Spotify beat forecasts, adding 6 million new subscribers in the second quarter. The company is defying Netflix's downturn, which is weighing on the music company's share price.

The company ended June with 188 million subscribers, beating its forecast of 187 million. The total number of users -- including those who aren't paying -- also beat expectations at 433 million.

Spotify shares are up more than 6 percent premarket on Wednesday.

Spotify stock suffered as Netflix's subscriber growth stalled, fueling fears among investors about the streaming service's business model. Shares have fallen more than 50 percent this year, reducing the company's market cap to $20 billion -- a third of the record high set during the pandemic.

Macroeconomic worries over inflation and the war in Ukraine have also weighed on the company, prompting Spotify to halt operations in Russia. Spotify estimates it lost 600,000 subscribers as a result of pulling out of the country. Due to rising inflation and fears of a possible recession, the company plans to cut staff by 25 percent in the second half of the year.

In the weeks following Netflix's failure, CEO Daniel Ek has attempted to differentiate Spotify from its video-streaming counterpart, telling investors in April that the two are "completely different companies."

In response to investor skepticism, Spotify held its first investor day since its 2018 IPO last month. Ek told investors he expects the company to grow 10 times its current size by 2030, reaching 1 billion listeners and $100 billion in revenue.

Analysts at Morgan Stanley warned this week that Spotify could be vulnerable to a recessionary downturn in the advertising market that "could derail the thesis." Advertising accounts for just 13 percent of the company's revenue, but the share is growing as it expands into podcasts.

Despite the concerns, Spotify's advertising revenue rose to 360 million euros in the second quarter, up 31 percent from a year ago and 28 percent from the previous quarter.

"Advertising is a major growth driver and key to margin development," said Morgan Stanley. "Podcasting as a revenue stream is still in its infancy for Spotify and should grow well in a slower economy, but Spotify made over €1 billion [2021] from music advertising versus less than €200 million from podcasting."

Spotify reported total revenue of €2.9 billion for the quarter, up 23 percent year-on-year and in line with analysts' forecasts. The company reported an operating loss of EUR 194 million, slightly above forecasts.

SpotifyNetflix

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