After experiencing a slowdown in Q1, ad spend began to rebound at Spotify in June as some markets exited pandemic lockdowns, the company said Wednesday on its Q2 earnings call.
Ad spend in April and May were down 25% before inching up to a 10% decline in June. For the quarter, ad-supported revenue increased 11% year over year to roughly $154 million.
“Advertising revenue, which took a significant hit in Q1, improved notably throughout the quarter,” CEO Daniel Ek said on the call. “We feel good about our momentum as we enter Q3.”
Spotify showed positive growth overall in the quarter despite the state of the economy, albeit at a slower rate than previously. Premium subscription revenue grew 3% to roughly $2 billion, bringing total revenue growth for the quarter up 2% to $2.25 billion.
Monthly active users grew 5% to 299 million, with premium subscribers up 6% to 138 million, and ad-supported listeners increasing 4% to 170 million. Consumption on the platform returned to normal levels in Q2 after taking a hit in Q1, Ek said.
Spotify’s ad-supported business is highly concentrated in North America, and revenues will depend on how the region recovers. The platform saw weaker activity in its direct business in the quarter as use of its self-serve ad platform grew, said CFO Paul Vogel.
Pod-land
Spotify spent most of the call talking about its ambitions in podcasting, where it recently made major investments.
This year, Spotify acquired the exclusive rights to carry the Joe Rogan podcast, the largest show in the market by listenership, and signed an exclusive licensing deal with WarnerMedia’s DC Comics. It also bought The Ringer after acquiring Gimlet, Anchor and Parcast in 2019. These moves led to a $20 million upfront commitment from Omnicom toward podcasts in July.
Ek described Spotify’s podcasting strategy as a “flywheel” between content, listenership and advertising.
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“With every new podcast we add to the platform, we create more engagement, which leads to lower churn,” he said. “It starts a virtuous cycle where more creators want to be on Spotify.”
Spotify now has 1.5 million podcasts on its platform, half of which were added in 2020. Podcast listening is up 100% year over year, with 21% of MAUs engaging with podcasts. Spotify will add more exclusive shows to drum up listenership but will continue to also host non-originals.
“Exclusivity is a key component of that strategy,” Ek said. “We want to create more and more original programming that only sits on Spotify.”
While podcasting doesn’t make up a significant portion of Spotify’s revenue yet, the company is ramping up its technology in the space to make that happen. Streaming ad insertion (SAI), launched at CES in January, allows brands to dynamically insert ads into podcast streams on Spotify exclusive shows, and it will allow Spotify to directly monetize more shows on its platform.
Spotify hinted at making SAI available to other podcast publishers as a third-party ad network.
“We’re very excited to bring ad tech to the podcast market,” Ek said. “You should look out for [that] in the coming years.”
