Spotify ended the third quarter with 306 million paying subscribers, up 9% from a year earlier, according to its third-quarter update, published on Thursday. Monthly active users rose 11% to 788 million. Revenue grew 16% to €4.97 billion, or 14% at constant exchange rates.
Spotify subscribers grew by 6 million in the quarter, a million more than the company had forecast. Users of the free, ad-supported tier rose 12% to 499 million.
“Our business performed well in Q3, with all of our KPIs meeting or exceeding guidance,” Spotify wrote in its update.
Higher margins, lower profit
Operating income rose 15% to €672 million. Gross margin reached 33.0%, which Spotify called a third-quarter record. Net income fell to €518 million from €899 million. A year earlier, net income included €262 million of finance income and a tax benefit of €72 million.
Premium revenue grew 17% to €4.49 billion. Average revenue per subscriber rose 9.3% to €4.95, which Spotify put down mainly to price increases. Advertising revenue grew 10% to €482 million.
Both revenue figures came in slightly below analysts’ estimates of €4.98 billion and €484.8 million, Bloomberg reported. Spotify’s own forecast for total revenue was €5.0 billion.
Operating expenses rose 26%, driven by marketing and by spending on cloud computing and AI. Free cash flow fell 9% to €735 million. Spotify has bought back $1.1 billion of its shares this year.
For the fourth quarter, it expects revenue of €5.2 billion, operating income of €820 million, 818 million monthly users and 316 million subscribers. In August, its profit forecast for the third quarter had come in below what analysts expected.
Paid memberships for podcasts
The results capped a busy week for the company. On Tuesday, Spotify launched paid memberships for podcasters in 34 markets, including the US, the UK and most of the EU.
Creators choose what members get, such as bonus episodes, exclusive audio or video, fewer ads, early access or a show’s archive. They can set several tiers and prices, and they keep 90% of the revenue.
To qualify, a show must be hosted on Spotify for Creators or Megaphone and have three published episodes. It also needs 100 listeners or viewers and 100 hours of listening on Spotify in the previous 30 days.
Fans will buy memberships on the web, not through in-app purchases, Spotify told TechCrunch. Launch shows include Making Sense with Sam Harris and The Shawn Ryan Show. Spotify first previewed the feature at its investor day in May.
Family plans and the car
Spotify is also asking some Premium Family members to prove they live with the person who runs the plan. According to its support page, the member has to scan a QR code on the manager’s phone, in the same place, within seven days.
Members who miss the deadline cannot join another Family or Duo plan for 12 months. Spotify says it does not track location and only checks the address. In the US, Premium Family costs $21.99 a month for up to six accounts, against $12.99 for Premium Individual.
“Household plans are for people who live at the same address as the primary account holder, as set out in our terms and conditions,” a Spotify spokesperson told TechRadar.
On Wednesday, Spotify released its first fully native car app, starting with Audi. It runs on the car’s own system, so no phone, cable or Bluetooth is needed for playback. It covers the A5, A6, Q5, A6 e-tron and Q6 e-tron, for Free and Premium users. Other carmakers will follow over the coming year, Spotify said.
About 34% of Spotify’s monthly users and 77% of its Premium subscribers listen in the car, The Verge reported.
Licensed AI remixes
Spotify also signed Believe, the French music company that owns TuneCore, for its coming AI remix tool. The tool will let Premium subscribers make covers and remixes of songs for an extra fee, with royalties going to the original artists. Believe’s artists must opt in. Spotify has similar deals with Universal Music Group, Merlin and Kobalt. In September, Believe was also among the companies licensing music for Suno’s new models.
The deal came the same day Spotify said it had pulled 50 million AI slop and spam tracks from its recommendations. Spotify is also taking audiobooks to more than 180 markets by the end of the year.