Spotify CEO Daniel Ek (Photo: WSJ.com)

Spotify’s third quarter earnings show the streaming firm’s first profitability, but the feat was more spreadsheet sleight of hand than earnings increase, and Spotify predicts it will be once again in the red for its fourth quarter.

The tax break stems from Spotify’s 2017  stock-swap with Chinese streaming giant Tencent Music Entertainment Group. After the two companies became strategic partners Tencent registered to go public in the US, which meant it had to publicly disclose its value, which caused Spotify to adjust its own valuation of the investment in Tencent, resulting in a one-time tax benefit that boosted Spotify to its first quarterly profit.

Spotify also announced that it hit 87 million subscribers at the end of September as part of the earnings report, released today. Nearest competitor Apple Music has reported 50 million subscribers (as of April). Spotify detailed ad-Supported monthly active useres (MAUs) totaled 109 million at the end of the quarter, up 20 percent year-over-year.  The company seemed to suggest the improvement was due in part to a new user-interface rollout earlier this year, it’s first major revision since the mobile product was introduced in 2014.

The company also pledged to continue to work to clean-up what had been reported as “fake” user accounts. “This includes, but is not limited to, bots and other users who aim to manipulate stream counts for purposes of royalty calculations. Such users are removed from our metrics in
a timely fashion once they are discovered. However, some such users may remain in our reported metrics because of the limitations of our ability to identify their accounts,” the company said as part of its earnings statement.

Premium Subscribers totaled 87 million at the end of Q3, up 40 percent from the same period the year prior.  The company touted its new family and student pricing models. The third quarter saw an emphasis on student outreach, with verified student subscribers in the US offered a  multipartner bundle consisting of Spotify, Hulu, and Showtime for $4.99 per month.

Spotify also summarized its big Q3 partnerships:

● Globally, Samsung will integrate Spotify into the setup experience on new phones, and
Spotify will be the preferred music partner for Samsung’s multi-device ecosystem.
● In the UK and Ireland, Sky, Europe’s largest pay TV service, will allow users to add
Spotify directly to their cable bill.
● In Japan, DAZN, a fast-growing sports subscription streaming service, will partner with
Spotify on marketing campaigns promoting Spotify.

Read the full shareholder earnings letter here.