Spotify Technology SA
posted better-than-expected growth in users and said its investment in podcasts is helping convert people who use its free tier into paying subscribers.
At the end of the fourth quarter, Spotify had 271 million monthly active users, topping the company’s expectations. The company had 124 million paying subscribers, its most lucrative type of customer, which was at the high end of its guidance.
Average revenue per user for the paid-subscription business fell 5%, or 6% excluding foreign-exchange-rate effects, to €4.65 ($5.14), mostly due to an extended free trial period in the quarter, but also owing to new subscribers coming in via discounted plans through family and student accounts, and lower pricing power in international markets. Promotional activity helped reduce monthly churn, or the number of users who end a subscription, compared to the year earlier, the company said.
Spotify’s revenue from subscriptions rose a better-than-anticipated 24% to €1.64 billion ($1.81 billion). Ad-supported revenue—an area of recent growth for the company as it builds out its podcasting business—rose 23% to €217 million, but fell short of expectations. The company blamed a slow start to the period on technical issues with a new advertising-order system.
More than 16% of Spotify users now listen to podcasts, the company said, and consumption hours nearly tripled in the quarter from a year earlier. Spotify, which has been investing heavily in making acquisitions and creating a slate of original and exclusive podcasts, has said people who listen to both music and podcasts are more likely to become paying subscribers than people who listen only to music.
In a letter to investors, the company indicated 2020 would be another investment year for podcasts. The Wall Street Journal reported last month Spotify is in talks to buy sports and pop-culture outlet the Ringer, according to people familiar with the matter, a deal that would let the audio streaming giant break into broader digital media and bring more than 30 podcasts under its roof. Spotify—which last year spent $400 million to snap up three podcast companies and struck more than two dozen deals for exclusive or original content—is in the market for more, according to one of the people, and the potential Ringer acquisition is just one of many possible transactions under consideration.
Meanwhile, Spotify has made moves to build out its “two-sided marketplace,” selling tools and services to artists and their teams. Late last year, the company acquired SoundBetter, a music-production service for artists and producers, and introduced sponsored recommendations, which let labels pay to promote new music to specific listeners. The company said it expects that business to help it become more profitable in the coming years.
Spotify swung to a loss of €209 million, or €1.14 a share, for the period as it invested in podcasts and other parts of its business. It had reported a profit of €442 million, or 36 European cents a share, in the prior-year quarter. Revenue jumped 24% to €1.86 billion, in line with guidance.
Free cash flow—a measure of the cash a company generates from operations, and a gauge that many investors view as a proxy for performance—was €169 million, up from €84 million a year ago.
For the current quarter, the company guided for monthly active users to grow to between 279 million and 289 million. Paying subscribers are projected to rise to between 126 million and 131 million and revenue is projected between €1.71 billion to €1.91 billion.
Dow Jones & Co., publisher of the Journal, has a content partnership with Gimlet Media, a unit of Spotify.
Write to Anne Steele at Anne.Steele@wsj.com
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