Daniel Shvartsman

Spotify Technology SA (NYSE:) shares opened up 7% after a strong Q3 that gave investors confidence over the company’s podcast investments.

Spotify reported revenue of €2.5B, beating estimates of €2.45B. Spotify reported revenue of EUR2.5B, beating estimates of EUR2.45B. Monthly active users increased 19% over the past year to reach 381 million. Both premium and non-ad-supported users saw their monthly usage rise 19%. Ad-supported revenues grew 75% and 17% respectively quarter over quarter. Premium subscription revenue was up 22% annually.

The ad-supported revenue ties to Spotify’s meaningful investments in podcasts, which the company hopes will boost both retention among paying users and gross margins as the content is fully owned vs. licensed songs from music labels. Ad-supported gross margins jumpedThe quarter ended at 10%. This is down from 30% in premium business, but an impressive jump from 8% for the first half. It was also essentially break-even. On the premium side, ARPU was 4% year over year, up to €4.34 per user.

The shareholder letter pointed out that podcasts on Spotify are up to 3.2M from 2.9M last quarter, and that the Spotify Audience network has seen the number of podcasts on it grow by more than 50% since launch, with “nearly 1 in 5 Spotify advertisers are already participating.”

Spotify’s guidance for Q4 included MAU of 400 million to 407 million and revenue of €2.54 billion to 2.68 billion, an increase on the lower end of the revenue range, with gross margins expected to come in at 25.1% to 26.1%.

The company also produced 99M in free cash flow this quarter and repurchased 157,510 shares for €30 million under this program at an average cost of $222.86 per share, under their new 1B authorization.