Spotify Technology SA (SPOT.N) added more customers than analysts forecast in the second quarter, a strong report that should ease investor concerns about growth prospects for the music-streaming company.

-Spotify’s subscriber base rose 29 per cent to 232 million, compared with Wall Street projections of about 227 million and the company’s guidance for a range of 222 million to 228 million. It ended the quarter with 108 million subscribers for its premium service, within its projected range of 107 million to 110 million.

Key Insights

• Spotify expects to keep adding premium subscribers, which pay more and are key to its push toward profitability. It now expects to exit the year with 120 million to 125 million premium subscribers.
• Spotify said it has reached agreement with two of four major record labels regarding licenses and is in active talks with the other two. Long-term profitability will hinge in a big way on the new royalty arrangements the company is negotiating with major music labels. Investors are betting they will allow Spotify to improve its margins, though the company has warned that is unlikely.
• Average revenue per user for the premium business fell less than one per cent to 4.86 euros (US$5.42). Record labels have criticized Spotify for charging too little in some territories. Downward pressure on the metric is moderating and Spotify said it expects declines for the rest of the year in low single digits.
• The company continues to rank as the world’s most-popular paid music service despite competition from Apple Inc., Amazon.com Inc. and Alphabet Inc.‘s YouTube.

Market Reaction

• The company’s shares are up 37 per cent this year. The shares were down 0.8 per cent on light trading before the U.S. market open.