Spotify Users Top Expectations Thanks to Gen Z Listeners

Ashley Carman, Bloomberg News

The Spotify logo on a laptop computer arranged in Hastings-on-Hudson, New York, US, on Wednesday, Jan. 25, 2023. Spotify Technology SA is planning to cut about 6% of its employees, or around 600 employees, joining a slew of technology companies from Amazon.com Inc. to Meta Platforms Inc. in announcing job cuts to lower costs. , Photographer: Tiffany Hagler-Geard/Bloomberg

(Bloomberg) -- Spotify Technology SA fell 14.3% in New York trading after the audio streaming giant reported sales that came up short of analysts’ expectations and issued a forecast that was also light.

Second-quarter revenue, up 11% to €3.18 billion ($3.51 billion), missed the average estimate of €3.21 billion. Sales this period will be about €3.3 billion, the company said Tuesday, shy of the €3.42 billion analysts were forecasting.

Shares of Spotify, which finished the quarter with 551 million active users, closed at $140.38 in New York.

The company expects to reduce its headcount this quarter, Chief Financial Officer Paul Vogel said on a call with investors. Spotify has been trying to lower costs — management cut 2% of staff in June, primarily in its podcasting division, and shifted its strategy from exclusive releases to wide distribution. Spotify is also reducing its real estate footprint.

Staffing will “actually be down in Q3,” Vogel said.

Higher subscriber growth isn’t translating into equally higher revenue as average revenue per user continued to decline. Spotify’s total active users rose 27% in the quarter, beating expectations. The company cited growth in all regions and among younger Gen Z listeners. Premium subscribers rose 17% to 220 million.

Spotify forecasts 572 million active users for its third quarter, 224 million of them premium subscribers.

On Monday, the streaming service raised prices in the US for the first time since its launch. The standard premium plan now costs $10.99, the same as Spotify’s primary competitors, Amazon Music and Apple Music.

On the call, Chief Executive Officer Daniel Ek said his preference has been to increase revenue through growth in customers and new businesses, but that is changing.

“There will come a time when price increases become a more important tool in the toolbox,” he said.

(Updates with close of trading in first paragraph.)