Spotify passes 500M users, but its premium-to-free ratio is falling

Spotify now has 515 million monthly active users (MAUs), representing a 5% increase on the previous quarter and 22% increase on the corresponding period last year.

This is the first time Spotify has claimed a user base in excess of half-a-billion users, with 210 million premium subscribers and 317 million on the ad-supported plan.

This represents a ratio of 40% paid-to-free listeners, a ratio that seems to be falling. For comparison, Spotify’s premium subscribers constituted 46% of its overall user base in 2019, falling to 45% in 2020, 44% in 2021, and 43% last year.

It’s not clear how many premium subscribers may be switching to the free ad-supported tier due to the economic downturn, but it’s clear that Spotify’s ad-supported user base is outpacing its premium subscribers.

However, this is not translating into ad-supported revenues. Spotify’s figures show that while its income from advertising grew 17% year-on-year, it actually fell by 27% on the previous quarter, with its total revenue dropping by 4% (though it increased by 14% on a year-on-year basis).

The company acknowledged that its revenue growth fell below expectations due to “macro-related variability in our advertising business.”

Spotify Q1 2023 earnings Image Credits: Spotify

However, Spotify is keen to stress that its MAUs grew by 26 million users overall vs a guidance of 15 million, making it the company’s single-biggest Q1 net growth and second largest quarterly growth in its history.

Another notable takeaway from its Q1 2023 shareholder report relates to its operating losses. While its losses this time around were improvement on the last quarter (€156 million vs €231 million on Q4 2022), the company is forecasting this trend to continue, with a projection of €129 million in operating losses for Q2 2023.