Spotify topped guidance for total monthly listeners in the first quarter of 2022, despite the loss of 1.5 million paid subscribers in Russia and a roiling controversy over Joe Rogan’s podcast that had elicited calls for a boycott.
The audio streamer’s monthly average user base grew 19% in Q1, to 422 million, representing a net gain of 16 million in the period. Spotify exceeded expectations on MAU growth even excluding a “one-time benefit” of 3 million users who had created new accounts to access the service after an outage in early March.
In Q1, Spotify netted 2 million Premium subscribers, to reach 182 million (up 15% year over year). That included approximately 1.5 million disconnects due to the company’s ceasing operations in Russia. Excluding the “involuntary churn” of Russian subs, growth was above expectations and subscriber gains outperformed in Latin America and Europe, according to the company.
“Our business exhibited strength and resiliency in Q1,” Spotify said in announcing the results. “Nearly all of our key metrics surpassed guidance, led by MAU outperformance, healthy revenue growth, and better gross margin.”
Shares of Spotify were down about 11% in midmorning trading Wednesday on the results. The stock has declined more than 60% year-to-date.
During March’s service outage, which caused users to be “involuntarily logged out of Spotify,” the company estimates that certain affected users created new accounts to log back in, resulting in approximately 3 million additional MAUs in the quarter. One month later, Spotify saw a “reversal” of the 3 million MAU lift. Q1 growth in monthly active users growth was “particularly strong in our Gen Z audience,” which Spotify attributed to new product features such as the expansion of lyrics across apps, as well as marketing and content initiatives.
Spotify reported revenue of €2.66 billion, up 24%, which was in line with expectations. Ad-supported revenue grew 31% year over year to €282 million. Spotify posted net income of €131 million, translating into earnings per share of €0.21 per diluted share. On average, Wall Street analysts expected revenue of $2.81 billion (€2.65 billion) and EPS of -26 cents (-€0.25), according to Refinitiv data.
At the end of Q1, Spotify had 4.0 million podcasts on the platform, up from 3.6 million at the end of Q4. Podcast consumption rates grew in the double digits in the period, and “podcast share of overall consumption hours on our platform reached another all-time high,” the company said, without providing numbers.
Spotify had previously said it expected to lose about 1.5 million paying subscribers in Q1, citing the suspension of premium service in Russia in light of the war on Ukraine.
Prior to Russia’s invasion of Ukraine, CFO Paul Vogel said at an investor conference last month, Spotify was trending ahead of its Q1 guidance of adding a net 8 million total users — which suggested Spotify was not seeing a significant loss of users because of the backlash over Rogan, the controversial podcast host whose show is exclusively carried on Spotify.
Rogan, who has $200 million-plus exclusive deal with the company, was the target of a boycott over accusations that he spread COVID misinformation on “The Joe Rogan Experience” show and the revelation that he used the N-word dozens of times in past episodes (leading Spotify to remove 70 “JRE” episodes from the service).
Rogan claimed he actually picked up 2 million new listeners during the heat of the controversy. His show has reached an average of about 11 million listeners per episode, according to recent industry estimates.
For the second quarter of 2022, Spotify projects reaching total MAUs of 428 million (implying a net gain of 14 million, accounting for the loss of Russia listeners and the exclusion of the 3 million MAUs gained during the March outage). It expects 187 million Premium subscribers for Q2, which assumes an additional 600,000 disconnects from the full closure of Russian operations in April; excluding Russia, the Q2 guidance implies the addition of approximately 6 million net new subscribers in Q2.
Spotify expects total revenue of €2.80 billion in Q2 and an operating loss of €197 million, which includes a €50 million hit from unfavorable currency exchange rates.
In a Q&A session after the earnings were released, Spotify co-founder/CEO Daniel Ek and CFO Paul Vogel deflected concerns about Russia and Netflix’s disastrous first-quarter report, which led many to expect similarly sobering results for Spotify. Regarding Russia, Vogel pointed out that Russian users accounted for 1% of Spotify’s MAU and less than 1% of its annual revenue, Ek acknowledged that “we did see a couple of weeks where advertisers paused” and “we definitely saw a little bit of impact toward the end of Q1,” but added, “overall the team is still super optimistic, and advertisers desire to spend on Spotify” and projected “really good growth” for Q2.
As for Netflix, Ek was quick to point out the differences between the two companies. “I think a lot of people are grouping us together because of both of us being media companies that are subscription-based,” he said. “But we’re vastly different businesses,” noting that Spotify is a platform with a vast array of content, while Netflix is more in the business of content creation — contradicting himself a bit, since the creation of exclusive content is an area that Spotify is getting into with its podcasting business, at vast expense — and he also noted that the competition in video streaming is “heating up,” while Spotify has been staving off competition since 2015 and remains the market leader. He added that as opposed to video, “Audio is an overlooked market.”
Finally, they were asked for details about their recent $300 million sponsorship of the Barcelona football (soccer) team, which brought the company a wave of criticism, coming as it did immediately after the Rogan controversy, from a company that loses dozens or millions of dollars every year. Ek and Vogel defended the deal by pointing to the size of Barcelona’s fan base, without explaining how it might benefit Spotify or musicians.
“In our ad business model we’re bringing on an entirely new supply of audio ads, and that’s about finding creative partnerships,” Ek said. “Sports is an enormous opportunity, soccer is the number-one sport in the world, with hundreds of millions of consumers. Some Barcelona games have audiences that are three or four times the size of the Super Bowl’s, and we’re front and center with them. We like a lot of things about this partnership.”
Vogel added, “Barcelona tracks over 700 million unique viewers per year, and we feel like the reach is there,” he said. “Two-thirds of their audience is in developing markets.”
Variety's Todd Spangler and Jem Aswad contributed to this post.