Spotify Surges on Premium Subscriber Success

In the words of its most-streamed artist, Spotify is shake, shake, shaking off any concerns that inflation will keep consumers from their ad-free music. 

The Swedish streamer hit 306 million premium subscribers in the third quarter, a 9% increase year over year and a million more than it had previously forecasted. While high prices for everything from gas to groceries have people swapping their beef for chicken and skipping doctor’s appointments, they’re not giving up on-demand skips or offline downloads, it seems. Spotify’s premium subscriptions grew across every region. 

Premium revenue grew 17% year over year, helping to boost total revenue up 16% during the same period. Spotify’s stock climbed 11% after it reported earnings Thursday. 

“I cannot really remember a time in Spotify’s history where we have added so much value back to the Premium tier like this current year here,” the audio giant’s co-CEO Alex Norström said during a call with analysts. The company started rolling out “Taste Profile” last month, for instance, which will give premium users more control over their recommendations. 

Rooting for the AI-Hero 

Like many other companies you know, much of Spotify’s recent spending has been focused on artificial intelligence. Last year, the company teamed up with OpenAI to allow users to get personalized recommendations and create playlists with ChatGPT. Then last month, it announced users could connect their accounts to Meta’s new personal agent Muse. It’s also betting on tools that will allow for fan-made remixes and covers using AI. 

But the €820 million (roughly $919 million) forecast for next quarter’s operating income will likely ease any investor concerns about the streamer’s AI spending. Besides, Spotify’s leadership is convinced the company will win in the AI era: 

• “Spotify is in one of the few categories that actually stands to thrive in the agentic age,” co-CEO Gustav Söderström said on a call with analysts. His reasoning is that agents excel at replacing chores like paying the bills and answering emails, but entertainment is the opposite. “Nobody asks an agent to summarize a song for them. The whole point of getting rid of these chores is to free up even more time for the things that you actually enjoy.” 
• Earlier this week, Jefferies analyst James Heaney called Spotify “highly defensible against AI disintermediation fears.”

Reading (Spotify’s Version): In Sweden, audiobooks are “almost as big as music,” Söderström said. “We wondered whether that was purely Swedish behavior or simply early behavior.” What they’re seeing now suggests the latter, which is why the company is expanding its audiobook offerings, which should lead to a stronger subscription business, he added. Earlier this month, Spotify announced it’s expanding audiobooks to more than 180 markets.