Spotify wasn’t spectacularly unprofitable in the third quarter. And it has a big Chinese streaming service to thank for that.
The world’s biggest subscription streaming music service by members,in the hundreds of millions of euros, primarily because royalties eat up the majority of its revenue. But its latest three-month period was the exception, thanks to a one-time tax windfall that was big enough to tap ‘s profit into positive territory for once.
Why? Last year, Spotify and a big Chinese streaming music service, Tencent Music Entertainment Group, swapped investments in each other to become strategic partners. Then this summer, Tencent Music registered to go public in the US — it’s expected to be one of the biggest tech IPOs ever. That registration meant Tencent Music publicly detailed the company’s value, which in turn meant Spotify needed to adjust how much it values its own investment in Tencent Music. That resulted in a tax benefit, which pulled Spotify into a quarterly profit for the first time ever.
But Spotify expects its bottom line to move back into the red in the current quarter, so enjoy it while it lasts.
Spotify also hit 87 million subscribers at the end of September, the music streaming service said Thursday in its third-quarter report. Spotify’s growth was near the high end of the range that the company predicted in July. Presumably, that keeps Spotify above its closest competitor, Apple Music, which had 50 million subscribers as of April.
Amid a cultural shift to streaming as the most common way people listen to tunes, Spotify and Apple Music have emerged as the leaders in a race to dominate subscription music. Though Spotify remains the biggest streaming service by both subscribers and those who listen for free, Apple Music reportedly has been outstripping Spotify’s growth, the world’s biggest market for recorded music.
Apple didn’t immediately respond to a request for comment. It hasn’t provided an update on its number of subscribers since May, when it widened its count beyond people actually paying for its service to include those who have free trials too. As of April, Apple Music had 40 million subscribers, with 8 million free trials, and the combined total crested over 50 million in May.
Spotify also said Thursday that 191 million people now use its service at least once a month, 28 percent higher than a year earlier. That also fell within its guidance from July. Unlike Apple, Spotify has a free tier that lets anyone listen to music with advertising. Apple has never disclosed a monthly-active-user stat; almost all people who use Apple Music are paid subscribers.
Looking ahead, Spotify predicted that it will have between 93 million and 96 million paid subscribers by the end of the year and that its monthly active users will increase to between 199 million and 206 million.
In the second quarter, Sweden-based Spotify reported a profit of 43 million euros ($49 million), or 23 cents a share, reversing a loss of 278 million euros, or 1.84 euros a share, a year earlier. Revenue rose 31 percent to 1.352 billion euros in the quarter.
Spotify shares were down 3.5 percent at $144.50 in premarket trading.
Originally published at 4:23 a.m. PT.
Updated at 5:05 a.m. PT: With more details from Spotify’s earnings report.
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