Spotify: 140 Million Users, $600 Million In Losses, No Profit In Sight

As Spotify Tops 140 Million Users, Losses Surmount With No Profit In Sight

Good news: Spotify just crossed the 140 million user mark.  Bad news: keep reading…

This morning, Spotify proudly announced that they have surpassed 140 million global monthly active users.  They also guaranteed payments of $2.2 billion to major content owners in the next two years.

Good news for Spotify, and even better news for big labels like Universal Music Group.  But there’s seriously bad news on the financial front, with losses spinning out of control.

For the year ending December 31, 2016, Spotify provided an on-demand catalog of over thirty million songs.  Their premium revenue and ad revenue increased 52% and 50% year-over-year, respectively.  The Swedish streamer’s monthly active users increased to 126 million, up from 91 million in 2015.  The platform also experienced strong growth, up over 50% to $3.2 billion.

But despite strong revenue, Spotify continues to bleed money.

In financial filings released earlier today, the company posted an operating loss of $390 million for 2016.  After accounting for finance charges from its $1 billion debt deal, the Swedish streamer posted a net loss of €539 million ($601 million).  The financial filing states,

The increase over our operating loss primarily relates to the cost of debt and the impact of foreign exchange rates on our debt and investments.

Following two major long-term licensing deals, Spotify said that it would pay major record labels $2 billion.  Hinting at their recent deals with Merlin Network and UMG, the filing reads,

“Subsequent to year-end, [Spotify] signed multi-year licensing agreements with certain music labels and publishers.  Included in these agreements are minimum guarantee commitments of approximately €2 billion for royalty payments over the next two years.”

That’s $2.2 billion at current exchange rates.

Admitting that the streaming market remains “an emerging market,” Spotify underscored its principal risks and uncertainties.  According to their filing, the streamer faces “strong competition” for users, listening hours, and advertiser spending.  While not naming competitors outright, they said that they faced “competition from players with substantial resources at their disposal.”

The company stated that it depends on their key personnel to develop “great products and services.”  They also depend on “successfully selling advertising and converting users to paying subscribers.”

Yet, ahead of their long-awaited IPO plans, Spotify has yet to show investors how it will turn a profit.  The streamer still remains a strong competitor against Apple Music, Amazon, and YouTube.  But all three of those companies are devising strategies to take a piece of that 140 million-strong user base.

 


Image by Fortune Live Media (CC by 2.0)

15 Responses

  1. Avatar
    Rudy

    This is what happens when techies start companies and have zero sense of what it takes to actually run a business. Uber, Spotify both showing record losses with an insane amount of users. How could they screw this up? All they need to do is stop giving away free music (Uber – cheap rides) and start charging for it. Pandora and others will SURELY follow out of respect for musicians (once labeld the co who is screwing musicians over) and for survival. These people have NOT A CLUE what it takes to run a business. They nearly had an answer but screwed it up on pure stupidity. MOST people do not download torrents. That is a small percentage and all it takes is a notice to scare most people away from doing it. The world is full of retards.

    • Avatar
      Anon

      When big companies start new ventures, they will also operate at a loss while trying to scale their business. The difference is that you can’t see the loss since they can cover it with the rest of their business. The new DirecTV Now service comes to mind.

      Spotify is more worried about growing their business than they are about turning a profit right now. At some point investors will demand returns, but clearly they’re not at that point yet. Pandora, on the other hand…

      • Avatar
        Rudy

        How could the CEO be worth 800 million if Spotify has never turned a profit? 790 million of that could have gone to artists and the guy would still be set for life. What are the other executives bringing in?

        Plenty of money has gone into Spotify. If that money helped artists and gave them incentive to write, we would all be better off. The CEO would still be rich, just not filthy, filthy rich.

        Somethings wrong with our worlds picture.

  2. Avatar
    Rudy

    correction: Ek is not a retard. He is an a-hole:

    “Daniel Ek has an estimated net worth of over $800 million. His main source of income is Spotify”

    • Avatar
      UnRudy

      Rudy might I suggest calling people “retards” is not the most intelligent way to make your point? Ek sold a previous company and was already very wealthy when he started Spotify so he actually does have a clue about business, clearly more than you do. How are these “record losses”? Compared to what? I can tell you ten companies off the top of my head that have lost more $.
      I don’t know if he takes a big salary (doubtful) but any real wealth from Spotify would be in the form of unrealized gains in the value of the company’s private stock. He doesn’t have that money sitting in an account, it is stock, so not as though he’s taking cash from artists.

      Plenty of companies don’t make money for many years when they are scaling up. Amazon is a example. That is why there is a risk/reward in the investment. The hope for investors is that by gaining more market share they are able to increase their margins because some costs will not increase at the same rate. Maybe it works, maybe it doesn’t but this blog has it out for them and unfairly characterizes most of what they report.

  3. Avatar
    Lest it be overlooked...

    On a side-note, it is very nice to see that DMN is now “https” secure. Progress; keep up the good work!

  4. Avatar
    Paul Callanan

    Creative Accounting Cayman Islands maybe with a dash of Ireland? Who knows, maybe a dash of Delaware LLC. Only Time will tell as know one else would.

  5. Avatar
    Gordon Gekko

    Spotify’s sole purpose right now is to make the numbers look good because they’re desperate to go public. The insiders know this isn’t a sustainable model and they want to cash in asap before it’s too late. The winners here will be Spotify and the Major Labels, not the Artists. Spotify will be a penny stock one day, but it won’t matter because Elk and his cronies will have cashed in by then.

    • Avatar
      Paul Resnikoff

      Economy is going great right now. Which means fat pigs with lipstick can go public (like Snapchat) and mint billionaires overnight. Doesn’t matter if the company will be here in 5 years.

      Any economic turbulence, and you’ve got major issues. Hence the pressure to IPO.

      • Avatar
        Gordon Gekko

        I don’t even think economic turbulence is necessary. Snap is stinking it up pretty badly right now. If Snap breaks it’s IPO price, that could shut the door for unicorn IPOs and then Spotify will be in trouble.

  6. Avatar
    Paul Resnikoff

    Points taken. But keep in mind that going public introduces a major level of added due diligence. If only to comply with SEC regulations.

  7. Avatar
    Anonymous

    said this on another post, but is Spotify gaming numbers? A test of playing exact same albums on both Spotify & Apple for the same length of time, has been yeilding different results, with Spotify 50% less plays according to analytics.

  8. Avatar
    smetidna

    if spotify can’t make even remotely a profit. How can others pay so much more in royalties?

  9. Avatar
    False profit

    Id like to see someone start a streaming service that had low overhead and fair payouts for everyone. A co-op of sorts, ran by artists and people who cared more about the future of music than getting rich overnight. I’d certainly jump on board that train.