Spotify shares surge after surprise profit, rise in paid users

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© Reuters. A trader is reflected in a computer screen displaying the Spotify brand before the company begins selling as a direct listing on the floor of the New York Stock Exchange in New York© Reuters. A trader is reflected in a computer screen displaying the Spotify brand before the company begins selling as a direct listing on the floor of the New York Stock Exchange in New York

By Neha Malara and Supantha Mukherjee

(Reuters) – Spotify Technology SA (N:) posted a surprise profit and beat Wall Street expectations for third-quarter revenue as the music streaming company added more-than-expected subscribers to its premium service, sending its shares up 12%.

The Swedish company, which has outstripped Apple Music (O:) in the race to dominate music streaming globally, said its number of premium subscribers had risen by 26 million in the past year to 113 million at the end of September.

“The fact that it’s delivering growth against an increasingly competitive backdrop is particularly impressive – especially when that competition is Amazon (NASDAQ:) and Apple,” said Hargreaves Lansdown (LON:) analyst Nicholas Hyett.

Spotify said in a letter to shareholders it was adding roughly twice as many subscribers per month as Apple.

However, lower-than-expected addition of new subscribers in the second quarter had led to concerns that rivals might be gaining on Spotify, particularly in countries where Spotify faces home-grown competitors.

“Investors were concerned that competition within the streaming music market was beginning to impact Spotify,” Atlantic Equities analyst James Cordwell said. “But the Q3 results seems to put this concern to rest.”

Spotify said it had also reduced artist marketing and research and development costs in the quarter, contributing to the surprise profit.

Spotify, which launched its service over a decade ago, has overcome resistance from large record labels and some major music artists to reshape how people listen to music.

The world’s most popular music streaming service forecast fourth-quarter total premium subscribers of 120 million to 125 million, largely in line with analysts’ expectations of 122.6 million.

The company expects its broader measure of monthly average users to grow to between 255 million and 270 million in the current quarter.

Net income attributable to shareholders rose to 241 million euros, or 36 cents per share, for the third quarter, compared with 43 million euros, or 23 cents per share, a year earlier. Analysts were expecting a loss of 29 cents per share.

Revenue rose 28% to 1.73 billion euros ($1.92 billion) for the three months ended Sept. 30. Analysts were expecting revenue of 1.72 billion euros.

Spotify said Chief Financial Officer Barry McCarthy would retire in January and be replaced by Paul Vogel, the current vice president of financial planning and analysis. McCarthy will rejoin the board of directors after he steps down.

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