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Daniel Ek: 3 things we learned from the head of Spotify when we called up the results for the company’s fourth quarter

Spotify released a mixed bag of results in its fourth quarter 2020 investor update last week (February 3rd).

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The good news included that SPOT beat the high end of its 2020 premium subscriber growth forecast to hit 155 million paid subscribers in the fourth quarter (ended Dec. 30).

This growth in premium subscribers resulted in premium revenue of EUR 1.887 billion for Spotify in the fourth quarter, which was slightly (+ 5%) compared to EUR 1.790 in the previous quarter (3rd quarter 2020) and by 15% compared to the previous year.

However, according to MBW, SPOT’s 2020 calendar year operating loss was EUR 293 million ($ 335 million) – more than four times the prior year.

Additionally, Spotify’s pre-tax loss in 2020 (minus additional finance-related costs) was EUR 709 million ($ 810 million), which is five times the corresponding 2019 loss for SPOT.

As Bloomberg noted, analysts were blown away by Spotify’s forecast for 2021.

Spotify Chairman & CEO Daniel Ek and Spotify CFO Paul Vogel were interviewed for a call from analysts last Wednesday (February 3rd), and MBW listened.

Here are three things we learned from Ek’s answers.

1) SPOTify assumes that there will be fewer new net subscribers in 2021 compared to the previous year – but Daniel Ek is still confident that Spotify will be a “multi-billion user opportunity” in the long term …

During Daniel Ek’s prepared remarks before answering analyst questions, he stated that “2021 will bring more uncertainty than any normal year”.

He added, however, that Spotify still has a “high level of confidence in our ability to deliver against the guidelines we provided”.

The SPOT forecast for 2021 included an end-of-year target for premium subscribers between 172 and 184 million euros and annual sales between 9.01 and 9.41 billion euros.

Both met with a poor response from investors: SPOT shares fell after the update, subscriber growth slowed from 2020, and revenue growth fell short of analysts’ expectations.

“We are facing a global pandemic and this pandemic has changed all user behavior in 2020.”

When asked about the company’s net subscriber forecast, Ek responded that he views Spotify as “a billion-dollar user opportunity” long term and that he is “as confident as I have ever been”.

Ek added: “As I mentioned in my opening speeches, we are facing a global pandemic, and this pandemic changed all user behavior in 2020.

“There is more uncertainty all year round about what will happen to the subscriber growth [what] We predict that we will do the things that we are only very, very sure we will accomplish. “

2) Spotify conducts experiments on social traits.

Ek was asked when Spotify plans to add social features to its platform – presumably the ability for fans to comment on tracks, for example – such as offering Chinese music streaming services such as Tencent Music.

The analyst who asked Ek the question also noted that “apps like Clubhouse might have an interesting entry here”.

The clubhouse is of course based on speech and audio rather than visual input, and the implementation of an audio-centric social function on Spotify, which is currently aiming to become the world’s leading audio platform, would be an interesting development.

“We are at the dawn of innovation in audio formats and the creator of fan interactivity is definitely one of the things we pay attention to and look at.”

Ek stated that Spotify is “very interested” in the idea of ​​adding social features to the service and that the company is “obviously paying”[s] Pay close attention to everything that is happening in markets around the world and new developments in the audio space. “

Ek added: “I’ve said that many times. We are in the early stages of innovation in audio formats and the interactivity between creator and fan is definitely one of the things we pay attention to and look at.

“We’re already doing experiments on this … I don’t have any specific information to post here, but there is a lot more to come in the coming months of this year when it comes to developing fan engagements.”

3) Price increases don’t mean that user growth has peaked. It’s just one of three ways Spotify can grow.

In the final question of the analyst call, Ek was asked if Spotify’s growth strategy is shifting from a focus on users to a “balance between price and users.” Does this shift mean that the company’s user growth has peaked?

In other words, is Spotify testing price increases in certain markets because user growth has reached its limits there?

Ek responded that “Spotify has three legs” to how Spotify can grow and confirmed that price increases will be part of its growth strategy going forward.

He explained, “First, we can improve our product offering. Second, we can open up new markets, and third, we can raise prices. “

Until recently, Ek added, the company hadn’t really tried to “play the third muscle” by raising prices “because we were focused on improving our product offerings and opening up new markets”.

In Norway, SPOT tested 10% price increases for its standard premium, student and family plans in July 2018, and they have stayed 10% higher since then.

In SPOT’s Investor Update, the company reports that it increased the price of the family plan in October 2020 in seven markets including Australia, Belgium, Switzerland, Bolivia, Peru, Ecuador and Colombia (alongside Duo in Colombia).

The early results of the increases are positive, says SPOT, after “seeing no significant churn or customer acquisition impact in these markets.

Ek added: “Take my homeland Sweden as a good example. This is a clear case in which we are tapping into an addressable population.

“So it probably makes sense to raise prices in Sweden in order to grow. This of course not only offsets Spotify but all of the amazing creators we have on our platform and allows us to bolster the offer for them. “

Ek added, “We are trying to optimize growth and there are three ways to grow. We are now adding the third part of the chair here too, but I don’t think you should read in it that growth has reached its peak. It’s more like we’re flexing our muscles now and adding this third part as well. “

He continued, “We have experimented with it [price rises] for some time. We started two years ago so we weren’t in a rush. We did it in Norway two years ago, since then in Argentina, Australia and many, many other markets.

“But this may be the time you see that it actually becomes part of the strategy. Mainly due to the positive response to the value we are already offering consumers. “Music business worldwide

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