Spotify’s drive to complement its music streaming with a big step into podcasting and related content seems to be paying off, despite the ups and downs of operating in an uncertain economic and political climate and Spotify’s exit from its foray into hardware. Today, the company announced quarterly earnings that saw its monthly active users up 19%, or 19 million, to 433 million — 5 million above its own forecast. The company originally forecast that its exit from Russia and the service outage in the quarter would mean just 14 million new users this quarter. Paid users now stand at 188 million, up 14%.
But it missed out on gross margins, which it says were negatively impacted “by our decision to stop manufacturing Car Thing,” the company’s in-vehicle music-control device. Spotify is charging a €31 million ($31.4 million) fee for this business because it’s hiring it.
“The goal of SpotifyThe exploration of Car Thing was to better understand in-car hearing and make audio accessible to a wider range of users and vehicles,” a spokesperson told TechCrunch. “Due to several factors, including product demand and supply chain issues, we have made the decision to stop further production of Car Thing units. Existing devices work as intended. This initiative has unleashed helpful insights and we continue to focus on the car as an important place for audio.”
The device wasn’t really launched until earlier this year and as of the writing of this story is still being sold, albeit at huge discounts. Spotify will support those that have been sold, but it appears that this will be the end of the road for Spotify’s much-discussed move into hardware. Spotify noted that the costs associated with Car Thing were partially offset by a positive change in estimates for rightsholders’ liabilities from prior periods. Gross margin fell to 24.6% from 28.4% a year ago, missing Spotify’s own estimate of 25.2%.
Spotify has overall beaten its own estimates for revenue and earnings but remains unprofitable. Net loss for the quarter was $197 million on revenue of $2.9 billion.
Podcasts remain a bright spot for the company. Spotify noted that it now has 4.4 million podcasts on the platform and that “The number of MAUs engaged with podcasts grew well into double digits year-over-year, and podcast usage rates per user continued to increase.”
The company took a closer look at promoting its free user base and found that the percentage of total revenue from ads was at an all-time high. However, if you look at the chart for the previous quarters, you can see that total revenue is still growing much faster than advertising. So the bigger question will be whether the cost of supporting this ever-growing base can be offset against the incoming sales. Premium ARPU, the top chart, similarly sees a widening gap compared to total premium revenue, although Spotify noted that some of this was offset by subscription price increases: