This story previously said Spotify switched off of Google's ad stack. A Spotify spokesperson said the company misspoke and that it has only switched off of Google's order management system, Google Sales Manager.
Friction from migrating off of Google Sales Manager in July caused Spotify to take a roughly $10 million revenue hit in Q3, the company said during its earnings call on Monday.
Despite 20% year-over-year growth to $189 million, Spotify’s ad-supported revenue came in below expectations, said Chief Financial Officer Barry McCarthy, who will step down in 2020, on the call. About 80% of that miss was due to “self-inflicted implementation and integration issues we experienced with the rollout of a new order management software,” the company said in a press release.
“Underperformance in the quarter was related to our dropping the ball on implementing a new operating system,” McCarthy said. “We moved off of the Google ad stack. I own that miss, it’s embarrassing, but it’s not related to the strength of the business.”
Spotify generally sells out 99.5% of its inventory, but the digital audio platform is currently delivering 97.5% of its inventory due to the switch off of Google's order management system, Google Sales Manager, which led to a combination of lost orders and under-delivery on other orders. It expects to return to normal sales numbers by Q4.
The migration hit programmatic sales particularly hard, stalling programmatic growth from 65% year over year in Q2 to 48% year over year in Q3. The hit was mostly related to a slowdown in video private marketplace revenue.
“The core thing I would want you to know is there was demand for that product, but we were simply unable to run it on the site,” McCarthy said. “The ads business today is performing strongly.”
Overall, revenues at Spotify were up 28% year over year in Q3 to $1.9 billion, with premium subscription revenues growing 29% year over year to $1.7 billion. Monthly active users (MAUs) were up 30% year over year to 248 million. Average revenue per user was down 1% to $5.18 due to changes in the product and geographic mix of the business.
It’s still early days, but Spotify is seeing positive trends from its major push into podcasting earlier this year.
Podcast hours streamed on the platform were up 39% year over year, with 14% of Spotify’s MAUs listening to podcasts on the platform. Spotify now has 500,000 podcasts on its platform as well as 22 original and exclusive titles from both Gimlet and Parcast.
Podcast engagement is also leading to increased conversions from ad-supported to paid listeners, although it’s too early for Spotify to attribute causality rather than just a correlation.
With positive momentum, however, Spotify will continue investing in podcasting aggressively, leveraging data on music listening habits to create better recommendations for users.
“We’re still experimenting with formats and it’s still early days,” said Spotify CEO Daniel Ek. “You should expect us to innovate on all forms of merchandizing and discovery tools we have so we can drive that number up significantly.”