Spotify Technologies S.A. (NYSE:SPOT) reported its second quarter results that show its turnaround efforts, including cost savings, are already bearing fruit. But with a high-resolution audio tier still in the works, Spotify is still behind Apple Inc (NASDAQ:AAPL) and Amazon.com Inc (NASDAQ:AMZN) who already have this feature. CEO Daniel Ek addressed this issue during the earnings call, stating that the plan is to offer a much better version of Spotify. Meanwhile, Spotify continued to improve its financials throughout the second quarter.

The Year Of Monetization Is Going As Planned

Second quarter results show that the audio giant is effectively executing its turnaround strategy, reducing its costs through layoffs and other saving initatives, improving margins, and growing subscribers while developing strong loyalty with existing ones.

A Sensible Growth Market Strategy

Spotify raised its prices, but accompanied the hikes with new offerings to boost top line growth, including a music-only streaming and audibooks only plan, along with a higher-priced audio bundle of all of its offerings, including music, podcasts, as well as audiobooks.

Second Quarter Highlights

Revenue grew 20% YoY to 3.81 billion euros which is about $4.14 billion, while ad-supported revenue alone grew 13%, recording double-digit growth across all regions.

Due to a lower marketing spend and lower personnel costs, operating income of 266 million euros or $289 million is a great improvement from last year's loss of 247 million euros. The figure surpassed even Spotify's own guidance of 250 million euros.

Net income amounted to 274 million euros or $298 million, resulting in earnings per share of 1.33 euros or $1.44 per share, compared to last year's comparable quarter when Spotify reported a loss of 302 million euros or $327.77 million, or more precisely, a loss per share of 1.55 euros or $1.68. Gross margin came in stronger than expected at a record 29.2%, also surpassing even Spotify's own guidance of 28.1%.

Total monthly active users grew 14% YoY to 626 million, but were below Spotify's guidance of 631 million. Premium subscribers jumped 12% YoY to 246 million, topping Spotify's own guidance of 245 million.

Third Quarter Guidance

Fueled by YoY improvements in music and podcasts, Spotify guided for revenue to grow 19% YoY to 4 billion euros, while expecting an operating income of 405 million euros and margin to hit 30.2%. Monthly active users are expected to grow to 639 million and premium subscribers to 251 million.

Though user growth softened, Spotify overall showed progress in expanding its margins, monetization, posting its second consecutive quarterly profit and record free cash flow.

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