Spotify Has Burned More Than $1 Billion In 3 Years, Leaked Financials Show

Spotify Burning $1 Billion In 3 Years...

Spotify’s cash burn is easily past $1 billion — in just 3 years — according to financial data leaked this evening.  But the good news?  Revenues are also surging.

Spotify CEO Daniel Ek may have the strongest stomach in the music industry.  Now, his high-stakes poker game is entering its riskiest stage, with cash burn expected to hit $350 million in 2017 alone.  And that’s a conservative estimate.

Last year, losses approached an elephantine $600 million.  The year before that, the company burned more than $258 million.

Which means that Spotify has incinerated more than $1 billion in total cash since in the last three years alone.

The leaked financial date comes from The Information, which tipped the tally this evening.  According to the publication, Spotify is telling investors that first-half losses are ‘between 100 million and 200 million Euros,’ an extremely wide range.

Translated into USD, that’s anywhere between $118 million and $236 million over six months— depending on how you count it!  Multiply that out, and 2017-year burn approaches $500 million.

The good news?  Revenues are booming, thanks to swelling paid subscriber numbers.

According to the leaked data, first-half revenues topped €1.9 billion, or $2.25 billion.  Extrapolating that towards the full year, sources project total revenues to reach €4.1 billion, or $4.86 billion.

That represents a 40% year-over-year gain.  Even better: Spotify’s first-half revenues are 70% of its entire revenues in 2016.  Of course, profitability is nowhere in sight, but that’s part of the plan.  Earlier, Daniel Ek flatly stated that profitability was not a goal of the company.

Spotify Is Paying $2.77 Million a Month In Rent for Its World Trade Center Offices

Instead, the company is pursuing an extremely high-growth strategy.  And hoping the engine doesn’t blow on the way.

But is this spending getting a little out of control?

Just recently, Spotify signed a $566 million, 17-year lease at 4 World Trade Center in Manhattan.  That works out to a cool $2.77 million a month — not counting the espresso machines.  But the biggest line-item is coming from licensing, including a $2.34 billion, two-year advance to the major recording labels.

Phew!  

Of course, labels are winning on both ends, thanks to hefty ownership shares.  Just recently, Spotify’s pre-IPO valuation was measured at $16 billion and rising.

More information ahead!

 


 

13 Responses

  1. Faza (TCM)

    The licensing costs are a red herring and always were. It’s nothing that wasn’t known in advance: Spotify have approx. 30% of their revenue to cover costs over and above product acquisition (that is: licensing). If they cannot achieve a profitability with something like 570 million euro over six months, I’d say something is very wrong. It’s not like they’ve got factories to maintain.

    The real reason for lack of profits – as already noted on these pages (not least in the present article) is the insane amount of spending on employee luxuries (starting with real estate and ending with compensation, especially at the top of the org chart). To put it succinctly: $3 million-per-month offices are for earners. Overheads like these have nothing to do with “pursuing a growth strategy” and other such nonsense.

    Daniel Ek is being surprisingly honest with regards to profitability not being a goal. Anyone with half a mind has already noticed. The goal is to make Daniel Ek and a bunch of insiders very rich – much as has been the case with all the “new model companies”. The end game is an exit event – hopefully, at the current $16 billion valuation or (preferrably) more. Someone’s going to get burned on this: most likely the sucker who actually puts up the money to buy this dog of a company.

  2. Adam

    As much as you want to go after them gross margins increased from 15 percent in all of 2016 to 22 percent in the first half of 2017. That’s big!

    And this before any of the savings from new label deals kicked in. Seems like they can get margins up to 25-28% by next year. Still off from Netflix’s 35% but getting much much better.

    • Paul Resnikoff

      Thanks for adding that important metric. And of course the revenue and paid subscriber gains are also strong.

  3. Cavan

    Spotify’s business model:

    1) Start up
    2) cash in
    3) sell out
    4) bro down

  4. lulz

    dudebruh for my dawg breh… if they would pay half of what they pay to artists/labels they would be profitable. or raise to 15$.

    Labels and artists are greedy fucks killing spotify and others. Let’s be correct and equally share the money with our job givers.

    • Paul Resnikoff

      That’s one argument, and I can certainly see that point of view. But this is an open marketplace on the recording side, specifically with major label licensing. The majors are allowed to set a market price, Spotify can then determine their next moves accordingly.

      After that, everything to me is just business strategy. You could argue that the labels should set a lowered rate to encourage the growth of a revenue-drawing platform. But there are certainly arguments on the other side as well. After all, Fedex doesn’t decide simply to give Amazon a half-price rate because they want shipping to grow. They have a business to operate and Amazon has to bake those costs into their model.

      That said, perhaps Fedex could strategically offer a discount, aiming to broaden their overall market and lock in future gains with longer-term agreements.

      Lots of ways to play this chess match.

  5. Versus

    And yet they still can’t be bothered to pay a reasonable rate per stream.

    • Esquire

      The audience does not pay by the stream. You can only calculate per stream rates after the fact. Analogy: How much do you pay per show for cable TV? Depends upon how much you watch, but it changes the pool of payments not at all.

  6. Anonymous

    Paul, your articles about Spotify’s financials are numerous, but I’m not sure what the issue is exactly. Plenty of companies seeking to capture a dominant marketshare have endured years of astronomical losses. The winner of the streaming war (which looks to be Spotify right now) has monstrous upside to look forward to as streaming grows matures and expands into the developing world with a potential for hundreds of millions of new subscribers over the next two decades.

    Amazon was a public company for 8 years before it posted its first profit, which was quite small, and remained small for another decade as it invested in growth. Uber is another example, though the jury remains out on whether they can achieve the and sustain dominant market share.

    it is a huge gamble but one with a lot of upside.

    if the issue is the perceived low payouts, one can look at how a company like Amazon squeezes its suppliers, or Uber treats its drivers. The company has the platform and the audience and this will always drive the costs of what is sold down to the bone. This may not leave much upside for the average musician but it is no different from the way the industry has worked for 50 years. Streaming is not an entitlement program and Spotify’s profitability isn’t a measure of their future prospects. If people stop listening, then we will have a problem.

  7. Kate

    Really unfortunate choice of photo given the fires and fatalities in California this week.

    • Paul Resnikoff

      Thanks for raising that. This is an image of a controlled bonfire we use in many stories related to ‘cash burn,’ my aim was absolutely not to offend anyone affected by the serious fires in Northern California.

    • Laughing

      I seriously hope you’re joking Kate. That’s clearly a photo of a man dancing around a bonfire. Even trying to link it to the California fires is malicious and ignorant. Might as well say that using a man in the photo is offensive because of what happened with Harvey Weinstein.