Spotify’s short-lived foray into portable gadgets has ended, with the company announcing in its second-quarter earnings call that it has hit the brakes to make Car Thing, its standalone smart player for cars that only became widely available in April.
In an earnings call with investors, the CFO Paul Vogel explained that the decision was made on the basis of several economic factors. “We tested a number of price points and frankly we haven’t seen the volume at the higher prices that would make the current product economically viable,” he said, adding that “increasing inflation and component costs, combined with the extended lead time required. that order parts has significantly changed the risk/reward of continuing to develop the product, which was launched at a price of $89.99 in the US
The company said the decision to limit Car Thing resulted in a one-time charge of 31 million euros ($32 million) and affected its gross margin, the remainder after royalties and other related content, which was 24.6% of total revenue compared to 25, 2% in Q1 and 28.4% a year ago. Vogel said the move to sunset the unit should minimize further gross margin impact and cash flow going forward.
The rest of Spotify’s earnings results for the quarter ended June 30 were generally positive, with the company announcing that its user base grew to 188 premium subscribers and 256 million free users during Q2, with total monthly active users (MAUs) now hit the 433 million mark.
These represent a net increase of 6 million paid users and 10 million MAU users compared to the first quarter. Both of these metrics were above guidance and impacted by reactivations in Europe, growth among young audiences in Latin America and better performance in developing markets including India, Indonesia and the Philippines. The company noted that excluding its exit from Russia and a previously announced service outage in March that led to several million existing users creating new accounts, it believes it had its biggest Q2 yet in terms of MAU growth.
Total revenue in the second quarter was 2.86 billion euros ($3 billion), up 23% year over year. Most of the revenue in Q2 came from subscriber revenue, which grew 22% y/y to 2.5 billion euros ($2.6 billion), boosted by continued strength in family plans, sales promotions and growth in Europe and Latin America. Ad-supported revenue fared better, rising 31% year-on-year to 360 million euros ($377 million) and now accounting for 13% of total revenue. While it doesn’t break it out, Spotify said Podcast revenue grew in the “strong double-digit range Y/Y,” led by a strong sales period by the Spotify Audience Network.
The carefully monitored average turnover per user (ARPU) for premium subscribers rose 6% y/y to 4.54 euros ($4.76), which the company said was helped by last year’s price increases but offset by growth in family plans.
Spotify reported an operating loss of 194 million euros ($203 million), up from 6 million euros in the 1st quarter and a profit of 12 million euros remaining in the 2nd quarter of 2021. The company cited the 31 million euro charge linked to ending Car Thing and increased publication prices, but primarily higher personnel costs due to headcount growth and headcount growth and higher advertising costs. (Spotify recently announced that it will cut hiring by 25% in the second half of 2022.)
The company said its business has more than 3.6 billion euros ($3.7 billion) in cash and its free cash flow was 37 million euros ($39 million), a slight increase year over year.
As for non-music content, Spotify highlighted that it now has 4.4 million podcasts streaming on the platform – an increase of 400,000 since Q1 – including 100 new original podcasts.
During the quarter, the company closed on its acquisitions of audiobook platform Findaway and AI voice platform Sonantic.