Spotify is riding on innovations and reported healthy numbers during Q2 2019. We believe this is a result of its tweaks around product mix and geographical mix. Here are some of the key points that we believe helped its strong financial performance in Q2.

Counterpoint View:

• Spotify Lite - a light app which can work smoothly in low connectivity zones, was rolled out. This helped the company to penetrate the rural segments. Presently, this service is available in 36 markets. With this initiative, Spotify is getting an early mover advantage as no global music streamer has come up with such an offering. We believe this is a major reason for an uptick in its monthly active users (MAUs) and subscriber base.
• Podcasts - Spotify has been very aggressive about podcasts since Q1. They have made and are continuously acquiring podcast production companies. They have been focussing on original content, and this led to its podcast audience growing more than 50% since Q1. Spotify’s platform delivered more than 30,000 new podcasts. It also announced a multi-year partnership with former US President Barack Obama and Michelle Obama’s production company Higher Grounds to create exclusive content for the Spotify platform.
• Spotify also launched on PlayStation Music. This helped it tap gamers and convert them into subscribers.
• Emerging markets - Spotify entering India has been a good move. With a focus on local content and aggressive advertising through Bollywood celebrities, Spotify has made a name in the market in a very short time.

Key Data Highlights:

• Monthly Active Users grew 29% year-on-year (YoY) to 232 million from 180 million in Q2 2018. The increase was 7% quarter-on-quarter (QoQ) basis.
• Premium Subscribers grew 31% YoY to 108 million. This growth rate exceeded that of MAUs, which is a healthy sign.

• Total Revenue grew at a healthy rate of 31% YoY and 10% QoQ to €1.66 billion.
• Gross Profit grew 32% YoY and 16% QoQ to reach €434 million. Gross margin stood at 26%.
• Operating Loss narrowed to €3 million compared to €47 million in the previous quarter.

The overall scenario looks good for Spotify. The financials are improving, and most importantly, the net loss has come down significantly. This is a good sign for Spotify, and if Spotify continues to innovate across its product and geographical mix smartly while keeping a control on expenses, we believe the company can finally become profitable in the short-to-mid term.