The old highs have been out of reach for Spotify stock for months.

The economic uncertainty resulting from the Ukraine war is also weighing on the music streaming market leader.

The fact that Netflix even lost subscribers in the first and now also the second quarter didn't help either.

However, the Swedes added 2 million paying users to 182 million in the first quarter, including a drop of 1.5 million subscribers due to the withdrawal in Russia.

Benjamin Fisher

Editor in Business.

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For the second quarter there is now an increase to 188 million subscribers.

The number of monthly active users was 433 million at the end of June, up from 422 million in the previous quarter, the Swedish company announced on Wednesday.

Both values ​​were above the previously issued forecast of 187 million and 428 million users respectively.

Sales increased year-on-year by 23 percent to 2.86 billion euros, which was also slightly above the forecast.

The subscription business (EUR 2.5 billion, up 22 percent) accounts for the bulk of this.

Advertising revenue grew by 31 percent compared to the same quarter of the previous year and, at EUR 360 million, now accounts for 13 percent of total sales.

In the last two weeks of June, the interest of advertising customers had waned somewhat, said CFO Paul Vogel in an interview with investors after the figures were presented.

In principle, however, Spotify remains optimistic – also in terms of general growth.

For the third quarter, Spotify is targeting sales of EUR 3 billion and growth to 194 million subscribers and 450 million monthly active users.

According to the forecast, the operating loss should amount to 218 million euros.

Continued reluctance to raise prices

At 24.6 percent, the gross margin for the past quarter was slightly below the forecast, which was not well received by investors when the figures were presented in April.

The bottom line was a loss of 125 million euros, after a minus of 20 million in the previous year.

The stock was up more than 10 percent in early trading on Wednesday.

Companies from the tech sector - including Spotify, which the Swedes pointed out again in the course of the presentation of the figures - had slowed down the pace of new hires in the past few weeks.

In addition, the discontinuation of the production of the “Car Thing” was announced on Wednesday, a hardware offer that allows users to listen to Spotify in the car.

This step cost 31 million euros and had a negative impact on the gross margin, it said.

The average revenue per subscriber – a value that is also being monitored very closely in the music industry – increased by 6 percent year-on-year to EUR 4.54.

In the first quarter of this year the value was EUR 4.38.

Spotify referred to the effect of price increases in the previous year.

In contrast to Netflix, Spotify is much more conservative here.

The Swedes have already made various subscriptions, especially family and student tariffs, more expensive in some places.

But apart from the much smaller Deezer service, no service has yet touched the symbolic price point of 9.99 euros per month for a single subscription in large markets.

Netflix, on the other hand, has raised prices several times.

What is sometimes viewed critically within the music industry could still accommodate Spotify or prevent layoffs - quite apart from the fact that permanent access to a music catalog of more than 70 million songs is a luxury for which there is no simple adequate alternative are.

“In terms of inflation alone, prices in most countries should have been much higher by now,” Spotify Europe boss Michael Krause told the FAZ at the end of last year.

Since then, inflation has picked up again significantly.

When asked about the topic and specifically price increases, Spotify boss Daniel Ek explained that one had to be careful in view of the macroeconomic situation, but definitely saw the possibility of pushing through higher prices in the long term.

In any case, previous increases have not shown a higher churn rate than expected anyway, said Vogel.

Expensive podcast strategy

The basic reluctance must always be seen with a view to the music streaming market itself.

Because Spotify and its competitors Apple, Amazon and Youtube Music mostly have the same range of music, for which they all pay around two-thirds of their sales to the rights holders in the music industry.

The video services Netflix, Disney and Co., on the other hand, are primarily vying for subscribers with expensively produced content.

Spotify also faces the challenge that its three main competitors are all owned by tech giants that can view their music service as part of a lucrative ecosystem.

For some time, Spotify has been trying to differentiate itself from the competition with an offensive in the podcast sector.

The "Audio first" strategy, which costs hundreds of millions of euros, recently included various takeovers and exclusive agreements with prominent podcasters.

On the one hand, podcasts offer the opportunity to offer content that is only available on Spotify, on the other hand, they should strengthen the advertising business.

Although paying users do not hear any advertising between pieces of music, they are also shown advertising in podcasts.

Last but not least, Spotify is also making itself more independent of the music industry with a stronger range of podcasts.

But the expensive strategy is a bet on the future, and the competition is also investing in the field.

In any case, music is still the core business.

Podcasts accounted for around 7 percent of the demand on the platform in the first quarter, according to an investor day in June.

In terms of sales, the division contributed around 2 percent in 2021.