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.
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