Spotify Benefits from Lockdows in 1Q20

Lockdowns around the world are changing people's consumption habits, from the content they consume to the time they spend doing it. Spotify knows this and notes that "morning routines have changed significantly. Every day now looks like the weekend," the company states in its 1Q20 report ending March 31.

Spotify’s paid music subscribers surged to 130 million in 1Q20 while monthly active users increased 31 percent from a year earlier, in line with the company’s forecast. However, its revenue rose 22 percent to €1.85 billion (US$2.01 billion) but missed the average analyst estimate of €1.86 billion (US$2.02 billion). The Swedish company also detailed that the audience that listens through televisions and game consoles has increased by more than 50 percent.

One of the most affected areas was advertising. And it is not a surprise, given that due to the uncertainty caused by COVID-19 in different economies, companies are cutting expenses in this area. In 1Q20, only 10 percent of Spotify’s overall revenue came from advertising. Despite the good results, the company lowered its forecasts for 2Q20, alleging lower expectations for sales in advertising, which is aimed at non-premium users.

In 4Q18, Spotify rose as a profitable company. Despite the entry of other players into the streaming music industry such as Apple Music or Amazon Prime Music, the company’s growth has continued. Spotify's business model works based on the following: the company receives monthly fees from premium paying users and advertising aimed at non-premium users. Spotify then takes all the money and then divides it by the total streams each artist received. According to Quartz, about 70 percent of the company’s revenue goes to artists.