Spotify Records Record Quarterly Profit After Year of Cost Cutting

Spotify's record quarterly profit in the first quarter of 2023 was attributed to deep cost cutting and streamlining measures taken by the company. These changes were influenced by the involvement of activist investor ValueAct, which took a stake in Spotify and called for spending rationalization. The company's efforts included laying off more than a quarter of its headcount and scaling back its podcast ambitions, except for re-signing a deal with Joe Rogan.

Spotify's first-quarter earnings exceeded analyst expectations. Here's a breakdown of the key financial metrics:

• Earnings per share: Spotify reported earnings of 97 euro cents ($1.04) per share, surpassing the 65 euro cents expected by LSEG analysts.
• Revenue: The company achieved 3.64 billion euros in revenue, slightly above the 3.61 billion euros anticipated by LSEG analysts.
• Monthly active users (MAUs): Spotify reached 615 million MAUs, which was slightly below the 618 million estimated by StreetAccount.

For the upcoming quarter, Spotify has provided the following guidance:

• The company expects net new Monthly Active Users (MAUs) of 16 million, which would bring the total to 631 million MAUs.
• Spotify also anticipates an improved gross margin of 28.1%, which is being driven by businesswide cost improvements.

ValueAct's involvement had a significant impact on Spotify's operations. After Mason Morfit's ValueAct disclosed a stake in the company in February 2023, Spotify undertook a series of cost-cutting measures, including laying off 17% of its staff by the end of the year. These actions were part of a broader push for spending rationalization that ValueAct publicly advocated for. The changes contributed to the company's record quarterly profit and improved gross margins.