Spotify shares surge after surprise profit, rise in paid users

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By Neha Malara and Supantha Mukherjee

(Reuters) – Spotify Technology SA (N:) posted a surprise profit and beat Wall Street’s expectations for third-quarter revenue as the music streaming company added more subscribers to its premium service than expected, sending its shares up 9% on Monday.

The Swedish company, which has outstripped Apple Music (O:) in the race to dominate music streaming globally, said its number of premium subscribers had risen by 26 million in the past year to 113 million at the end of September.

That still leaves Spotify some way behind video streaming giant Netflix’s (O:) 158 million subscribers but was just above the 112.9 million expected by analysts, according to IBES data from Refinitiv.

“The fact that it’s delivering growth against an increasingly competitive backdrop is particularly impressive – especially when that competition is Amazon (NASDAQ:) and Apple,” Hargreaves Lansdown (LON:) analyst Nicholas Hyett said.

Spotify said in a letter to shareholders it was adding roughly twice as many subscribers per month as Apple.

However, less-than-expected addition of new subscribers in the second quarter had led to concerns that rivals might be gaining on Spotify, particularly in countries where Spotify faces home-grown competitors.

“Investors were concerned that competition within the streaming music market was beginning to impact Spotify,” Atlantic Equities analyst James Cordwell said. “But the Q3 results seems to put this concern to rest.”

Spotify, which launched its service over a decade ago, has been able to overcome resistance from large record labels and some major music artists to reshape how people listen to music.

By far the world’s most popular music streaming service, it forecast fourth-quarter total premium subscribers in a range of 120 million to 125 million, the mid-point of which was in line with analysts’ expectations of 122.6 million.

The company expects its broader measure of monthly average users to grow to between 255 million and 270 million in the current quarter, above analysts’ average estimate of 259.7 million.

For the third quarter, net income attributable to shareholders was 241 million euros ($267.34 million), or 36 cents per share, compared with 43 million euros, or 23 cents per share, a year earlier. Analysts were expecting a loss of 29 cents per share.

Revenue, however, rose 28% to 1.73 billion euros for the three-months ended Sept. 30. Analysts were expecting revenue of 1.72 billion euros.

The company also said Chief Financial Officer Barry McCarthy would retire in January and be replaced by its current Vice-President of Financial Planning and Analysis, Treasury and Investor Relations, Paul Vogel.

Shares were up 9% at $131.15 in premarket trading.

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