Spotify records robust profit growth as user base grows; founder Daniel Ek moves to new role — details here

Spotify forecast first-quarter earnings above Wall Street estimates on Tuesday, as the Swedish streaming company continued to benefit from strong user growth and recent subscription price hikes, sending its shares up sharply in early trading, news agency Reuters reported.

The results mark the first report since co-CEOs Gustav Soderstrom and Alex Norstrom took charge from founder Daniel Ek, who stepped into the role of executive chairman in January as part of a leadership reshuffle.

The fresh outlook has led to the company's shares rising nearly 16% to $479.22 on Tuesday, 10 February.

While price increases in several markets and cost cuts powered profits in the December quarter, Spotify's revenue growth hit the slowest since its 2018 market listing, according to the agency report.

What is driving this growth?

At the center of its growth strategy, Spotify has rolled out a prompted playlist feature, invested in video podcasts including through a partnership with Netflix, and expanded beyond audiobooks into physical books, as it looks to fend off competition from Apple and Amazon's streaming services.

Interactive DJ, Spotify's AI-powered personalized music tool, has "over 98 million paid subscribers using it and it's created 4 billion hours of engagement", Soderstrom told Reuters.

"Spammy AI music is not a new problem. It's just more scale on an existing problem," he said in a call with analysts.

Spotify has also been working closely with the music industry to enable creators and labels to include information in the metadata about how their music was made, which users can see, the report said.

Company forecast

The company forecast operating income of 660 million euros ($786.13 million) in the first quarter, compared with analysts' average estimate of 652.3 million euros, according to data compiled by LSEG.

Meanwhile, Spotify's quarterly revenue forecast of 4.5 billion euros was slightly below the estimate of 4.57 billion euros. Fourth-quarter revenue rose 7% to 4.53 billion euros, in line with estimates.

Spotify also increased the price of its monthly premium subscription plan by $1 to $12.99 in the United States, Estonia and Latvia this year, after a similar price hike in more than 150 markets last year.

Commenting on the company's growth, Norstrom said “we (Spotify) are seeing lots more growth coming from emerging markets”.

Its quarterly outlook for 759 million monthly active users was above an estimate of 753 million, while its prediction for a 3 million increase in premium subscribers to 293 million was below estimates.

Premium subscribers grew 10% to 290 million in the fourth quarter, versus an estimate of 290.9 million.

The company added record MAU net additions of 38 million, bringing the total to 751 million, attributing the growth to Wrapped — its year-end roundup of users' listening habits.