Financial metrics
Spotify reported the following financial metrics for Q3 2019:
“Total revenue of €1,731 million grew 28% Y/Y in Q3. Consolidated revenue modestly beat our expectations with Premium outperforming and Ad-Supported weaker than forecast. Premium revenue was €1,561 million, up 29% Y/Y, while Ad-Supported revenue was €170 million, up 20% Y/Y.
“For the Premium business, average revenue per user (“ARPU”) of €4.67 in Q3 was down 1% Y/Y (down 3% excluding the impact from FX rates). The largest driver of ARPU decline continues to be product mix, although geographic mix also plays a role. As a reminder, approximately 75% of the impact to ARPU is attributable to product mix changes, and the remainder a function of changes in geographic mix and other factors.
“For the Ad-Supported business, revenue growth of 20% Y/Y underperformed our expectations in Q3. Roughly 80% of the miss was related to self-inflicted implementation and integration issues we experienced with the rollout of a new order management software to replace Google’s Doubleclick Sales Manager which was sunset in July. This resulted in a combination of lost orders and under delivery of other orders totaling about €9 million of “lost” revenue.
“The balance of the revenue shortfall related to a slowdown in programmatic growth from 65% Y/Y in Q2 to 48% in Q3, mostly related to a slowdown in video PMP revenue. Programmatic revenue was sluggish early in the quarter but regained momentum during Q3. Podcasting revenue outperformed expectations with strong Y/Y growth but is still a relatively small slice of the total Ad-Supported business at less than 10% of total ad revenues.
“Operating expenses of €387 million in Q3 increased 11% Y/Y, significantly less than the pace of revenue growth. Operating Profit was €54 million, an Operating Margin of 3.1%. Share price performance and the associated social charges were a significant driver of this outperformance versus expectations, but we would have been profitable even without this impact. Other drivers of our better than expected profit in the quarter were higher Gross Profit and lower than expected spend across artist marketing, promotion of original content, R&D, and G&A.”
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