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Spotify Technology SA (NYSE:SPOT) shares opened up 7% after a strong Q3 that gave investors confidence over the company’s podcast investments.
Spotify reported revenue of €2.5B, beating estimates of €2.45B. Monthly Active Users (MAUs) rose 19% year over year to 381 million, with both ad-supported non-paying users and premium users rising 19%. Ad-supported revenue grew 75% year over year and 17% quarter over quarter, while premium subscription revenue grew 22% year over year.
The ad-supported revenue ties to Spotify’s meaningful investments in podcasts, which the company hopes will boost both retention among paying users and gross margins as the content is fully owned vs. licensed songs from music labels. Ad-supported gross margins jumped to 10% this quarter, still off the 30% levels of the premium business but a big jump from 8% in the first half of the year and basically break even last year. On the premium side, ARPU was 4% year over year, up to €4.34 per user.
The shareholder letter pointed out that podcasts on Spotify are up to 3.2M from 2.9M last quarter, and that the Spotify Audience network has seen the number of podcasts on it grow by more than 50% since launch, with “nearly 1 in 5 Spotify advertisers are already participating.”
Spotify’s guidance for Q4 included MAU of 400 million to 407 million and revenue of €2.54 billion to 2.68 billion, an increase on the lower end of the revenue range, with gross margins expected to come in at 25.1% to 26.1%.
The company also produced 99M in free cash flow this quarter and repurchased 157,510 shares for €30 million under this program at an average cost of $222.86 per share, under their new 1B authorization.
