Spotify, the world’s largest music streaming platform, has decided to hold off on raising prices on its U.S. subscription plan for now, despite recent hikes at competitors Apple Music and YouTube Premium. However, in a recent earnings call, CEO Daniel Ek hinted that a price increase could be on the horizon in 2023.
In this article, we’ll take a closer look at the factors behind Spotify’s decision not to increase prices, the company’s recent performance, and the prospects for future growth.
The Case for a Price Increase
During the Q1 earnings call, Ek confirmed that Spotify had raised prices last year in 46 different markets, and that these markets had continued to outperform despite the increase. He stated that the company would like to raise prices in 2023, but that this decision would largely depend on ongoing negotiations with label partners.
According to analysts, Spotify’s recent profitability push is likely to result in a price increase announcement in the coming months. The company’s gross margins are expected to remain between 30% and 35% over the long term as it scales its podcasting and ads business.
Mixed Performance in Q1
In the first quarter of 2023, Spotify reported 515 million monthly active users (MUAs), beating expectations of 502 million. Premium subscribers also outpaced estimates at 210 million versus the expected 207 million.
However, the quarter was not without its challenges. Ad market weakness put pressure on revenue, and management remained cautious about the company’s performance going forward. Despite beating gross margin expectations of 24.9%, Spotify CFO Paul Vogel stated that the quarter was “choppy” and that the company was “optimistic, but also cautious.”
The Path to Growth
Ek emphasized that the company is focused on optimizing for growth and has many tools at its disposal beyond simply raising prices. These include providing more runway for premium subscribers and increasing average revenue per user.
Spotify’s label partners are also on board with this approach, according to Ek, who stated that the company is in constant dialogue with them about how to achieve growth.
While a price increase is likely to be on the horizon for Spotify in 2023, the company’s recent performance and management’s cautious outlook highlight the challenges it faces in a rapidly evolving industry. Nevertheless, Spotify’s continued focus on growth and the support of its label partners suggest that the company is well-positioned to weather these challenges and continue its dominance in the music streaming space.
- Why is Spotify holding off on a price increase for now?
- The decision will largely depend on ongoing negotiations with label partners.
- How has Spotify’s performance been in Q1 2023?
- The company beat expectations for monthly active users and premium subscribers, but faced challenges in the ad market.
- When is Spotify likely to announce a price increase?
- Analysts expect an announcement in the coming months.
- What tools does Spotify have to achieve growth beyond raising prices?
- These include providing more runway for premium subscribers and increasing average revenue per user.
- How is Spotify’s management approaching the challenges it faces in the industry?
- Management is focused on optimizing for growth and engaging in constant dialogue with label partners.