From Question Mark To Exclamation Point: Takeaways From Spotify’s Q2 2022 Earnings
In Q2 2022, Spotify’s revenue, advertising, and monthly active users (MAUs) grew, defying fears that inflation and subscription fatigue would weaken demand. Spotify’s strong Q2 2022 performance continues the company’s rebound from its bouts with cancel culture in Q1 2022.
Advertising Growth Is Solid, But Subscriptions Bolster Business
Unlike Snap and Twitter, whose revenues fell as advertisers pulled back, Spotify’s growth hasn’t been materially impacted by the threat of an economic downturn. During the earnings call, Daniel Ek, Spotify’s CEO, said that he’s “paranoid” about “the looming recession,” but that “it’s hard to reconcile a … gloomy macroeconomic environment with what [Spotify’s] seeing, because the … story is very positive.”
Spotify’s strong results suggest that subscription businesses with passionate audiences and long-term pricing power — in contrast to businesses addicted to ad revenue — are well positioned to weather economic uncertainty. Spotify’s ad revenue rose 31% in Q2 2022 to $367 million, reaching an all-time high at 13% percent of total revenue, though most of Spotify’s revenue (87%) still comes from subscriptions. Spotify’s CFO, Paul Vogel, noted that ad spend softened in the last two weeks of Q2. Vogel expects ad revenue to be “slower [in Q3] than we … [forecasted] earlier in the year,” but overall, advertising growth will be solid, signaling that Spotify’s substantial investments in monetization are now paying off.
Continued User And Subscriber Growth Evince Spotify’s Effective Marketing
Spotify’s 433 million MAUs (versus 428 million expected) were 19% more than a year ago, making Q2 2022 Spotify’s largest-ever second quarter. Expectations are high for Q3, with Spotify anticipating 450 million MAUs. Spotify credited its user growth to effective marketing campaigns, such as “All Ears on You,” to account reactivations across Europe and to “Gen Z strength in Latin America.”
In addition to growing MAUs, Spotify reported 188 million premium subscribers (versus 187 million expected), 14% more than last year due to “promotional intake and household plans.” The average revenue per user for Spotify’s subscription business grew 6%, making Q2 2022 the fourth consecutive quarter of growth after years of downward pressure on average revenue per user, when Spotify discounted subscriptions to facilitate acquisition.
Podcast Growth Is Fast But Choppy
Spotify reported 4.4 million available podcasts on its service, 10% more than Spotify had in Q1 2022, including 100 new original podcasts such as “Breaking Bad Insider Podcast” and “Batman Unburied,” which beat Joe Rogan to number one in several markets. Spotify also noted increased engagement with video podcasts, which we expect to continue. Our June 2022 Media And Marketing Survey found that 41% of US online adults who listen to podcasts “want podcasts to be more visual.” Spotify’s expansion into podcasts hasn’t been entirely smooth, though. “Reply All,” one of Spotify’s biggest podcasts, aired its final episode on June 23 after its cohosts decided to leave Spotify’s Gimlet. Similarly, the Obamas, who signed a deal with Spotify in 2019, decided not to extend their deal. Instead, they’re heading to Audible. Overall, Spotify’s podcasts will lose the company more money this year than ever before, but in the next five years, Spotify expects podcasts to become profitable.
Beyond podcasts, Spotify plans to expand into audiobooks, supported by the company’s acquisition of Findaway. According to Daniel Ek, listeners can expect to experience the “full extent” of Spotify’s audiobooks in the first half of 2023.
Notably, the release date and pricing for Spotify HiFi, Spotify Premium’s tier offering CD-quality music streams competitive with Amazon Music and Apple Music, were absent from Spotify’s Q2 2022 earnings. Spotify announced HiFi in Q1 2021 and planned to launch the product by the end of last year, so we’re mystified by its omission. Nevertheless, Spotify’s expanding podcast and audiobook businesses offer B2C marketers many opportunities to authentically, intimately, and relatively affordably engage consumers.