Spotify on Wednesday reported second-quarter revenue above analyst estimates, helped by a 14% increase in paying subscribers, and forecast an optimistic running quarter, although it will stop production of its dashboard accessory, Car Thing. The company’s shares rose 5% in pre-market trading. The number of monthly active users increased by almost a fifth to 433 million, above expectations of 428 million, reaching 450 million in the third quarter.
The Swedish music streaming company’s revenue comes from paying subscribers and from playing ads to users who use the service for free. Ad-supported revenue grew 31% in the quarter. Investors worried about companies that depend on such revenue after Snapchat owner Snap warned last week that advertisers had tightened their spending in response to the murky economic outlook.
“We saw a bit of softness in the last two weeks of the quarter,” Spotify’s Chief Financial Officer Paul Vogel said in an interview. “While we expect advertising to become a much larger part of our business in the long run, it’s still a fairly small part of our revenue at just 13%,” he said.
Spotify’s Car Thing is a dashboard-mounted voice-activated streaming device, launched last April for a wider rollout.
Premium subscribers, which represent the bulk of the company’s revenue, rose to 188 million, exceeding analyst expectations of 187 million. Spotify posted a 23% increase in revenue to 2.9 billion euros ($2.94 billion), compared to expectations of 2.8 billion euros, according to IBES data from Refinitiv.
Car Thing, a dashboard-mounted voice-activated streaming device, launched in April last year for a wider rollout. Priced at $89.99, the device is currently discounted to $49.99. At this price and with increasing supply chain problems, the company was unable to achieve an attractive economic profile, CEO Daniel Ek said in an interview.
“We saw a lot of high demand for the car with existing integrations and automakers are waking up and offering better in-car solutions,” he said.
Spotify, which has been aggressively hiring, has slowed its workforce growth by 25% from the third quarter as it scrutinizes its marketing activity. With the uncertainty in the market, it’s the wise thing to do, as hiring is a long-term decision that isn’t easily reversible, Ek said.
Spotify forecast paid subscribers of 194 million in the current quarter, in line with expectations. It expects a turnover of 3 billion euros, above the estimates of 2.95 billion euros.