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Spotify says its pared-back app for poor countries is paying off

Earphones are seen on top of a smart phone with a Spotify logo on it, in Zenica February 20, 2014. Online music streaming service Spotify is recruiting a U.S. financial reporting specialist, adding to speculation that the Swedish start-up is preparing for a share listing, which one banker said could value the firm at as much as $8 billion (4 billion pounds).
REUTERS/Dado Ruvic
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  • Adam Rasmi
By Adam Rasmi

Reporter

Spotify found its groove in the second quarter, posting revenue of €1.67 billion ($1.86 billion), up about 30% from the same time last year. The streaming music company’s global monthly active users reached 232 million, also about a 30% bump since 2018. Although it reported a €76 million loss for the quarter—it has lost money in 12 of the past 14 quarters—this was much smaller than the €394 million loss recorded in the same quarter last year.

Where Spotify hit a sour note, though, was in paid subscribers: it now has 108 million paying users, which missed analyst expectations. The company’s shares fell by around 5% in early trading as a result. Even so, Spotify’s stock is up 30% so far this year, outperforming the 20% gain in the S&P 500.

In its earnings report (pdf), Spotify highlighted its success in boosting long-term retention, particularly in emerging markets. One factor in this is the rollout of Spotify Lite, a slimmed-down app available in 36 markets that’s suited for customers with limited phone storage and internet bandwidth. More than one-third of Spotify’s user base now comes from outside Europe and North America, a share that is expected to grow over time.

The company has battled against churn rates for years—something the Lite app is designed to help with—and monthly average churn fell to a record-low of 4.6% in the latest quarter. Given the high cost of acquiring new customers, keeping existing ones is a key gauge of success.

Spotify said that it expects revenue and users will continue to grow strongly for the rest of 2019. But that still won’t translate into profits, with the midpoint of the company’s guidance suggesting a loss of around €120 million in the second half of the year.

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