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Spotify’s Average Revenue per User Is Shrinking

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May. 13 2019, Published 3:53 p.m. ET

Spotify hits 100 million paying subscribers milestone

Spotify (SPOT) derives more than 90% of its revenue from its paying subscribers. At the end of the first quarter, Spotify had 100 million paying subscribers, up from 96 million in the previous quarter. Pandora, which is now owned by Sirius XM (SIRI), exited the first quarter with 6.9 million paying subscribers. Apple has about 50 million paying music subscribers, whereas Google (GOOGL) now serves more than 15 million subscribers across its paid music services, according to Bloomberg.

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Although Spotify’s paying subscriber base has continued to expand, the amount of money the company makes from each of those subscribers has been shrinking. In the first quarter, Spotify’s ARPU (average revenue per user) fell 2.0% YoY (year-over-year) to $5.29. Its ARPU fell 7.0% in the fourth quarter of 2018, 6.0% YoY in the third quarter, 12% YoY in the second quarter, and 14% YoY in the first quarter.

Pressure on ARPU easing

Spotify executives don’t see the company’s falling ARPU as a sign of its business deteriorating. According to Spotify, its lower ARPU is caused by strong demand for its discounted family and student plans. The company says customers on these plans are very loyal to its service, so they contribute more to the company’s coffers over the long term. It has reported that the pressure on its ARPU has moderated and it expects ARPU declines to ease later this year.

Spotify narrowed its quarterly loss

Spotify lost $158.7 million in the first quarter, compared with ~$190 million a year prior. Netflix (NFLX) and Amazon (AMZN) made profits of $344 million and $3.6 billion in the first quarter, respectively.

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