Spotify grows to 75M subscribers, earnings disappoint Wall Street

Posted:
in iPod + iTunes + AppleTV edited May 2
Streaming leader Spotify on Wednesday issued its first earnings report after going public in February, noting a sequential increase in paying subscribers and revenue of $1.36 billion. The performance missed Wall Street expectations.

Daniel Ek


Spotify finished the quarter ending in March with a new high of 75 million subscribers, an increase of 45 percent from the same time last year, the company said. Those premium members are folded into the 170 million active users the service recorded over the same period, a figure up 30 percent year-over-year.

For the quarter, Spotify recorded year-over-year revenue growth of 26 percent, in line with its own estimates, but short of Wall Street predictions. The firm's stock price tanked in after-hours trading, down to as low as $153.50, or nearly 10 percent at the time of writing.

In April, industry competitor Apple Music reached a milestone 40 million subscribers, up from 27 million recorded last June.

While Spotify's subscriber base is nearly double that of Apple Music, Apple is gaining paying users at a rapid rate of 5 percent per month. As noted by The Wall Street Journal, Apple Music's trajectory will put the service ahead of Spotify in the U.S. sometime this summer.

Whether domestic growth will translate into international gains remains to be seen, but users are showing continued interest in Apple's product with some 8 million potential customers currently signed up for a three-month trial.

Apple executives touted Apple Music's growth during an earnings conference call for the second quarter of 2018, with CEO Tim Cook saying the product helped push services revenue to a new high of $9.1 billion. CFO Luca Maestri added the most recent March quarter saw Apple Music reach a new record for both revenue and paid subscribers.

Comments

  • Reply 1 of 16
    Not all subscribers are equal and that's why Spotify's revenue is disappointing and will probably continue to be.  A large percentage of their subscribers are taking advantage of $1 a month trials (which they might not renew) or are bundled subscribers who get discounts (or free premium service) as part of their cell phone service or are Starbucks employees with free "paid" services, etc.  All of Apple's paid subscribers are paying full rates (or family plans) after a three month trial.  It would be interesting to know how many of Spotify's "premium paid subscribers" are actually paying anything close to the base $9.99 a month.  Probably not so many.  Spotify still works primarily as a free service, despite it's efforts to claim otherwise.  It's going to be slowly eaten up by Apple and then the curtain will be pulled back to reveal most of it's premium service customers were created with smoke and mirrors.
    lostkiwiwatto_cobra
  • Reply 2 of 16
    lkrupplkrupp Posts: 6,292member
    The usual suspects are always touting Spotify's superior subscriber numbers as proof it is eating Apple Music's lunch. We are treated to a constant barrage of comments from Spotify disciples extolling the virtues of the service and its superiority over Apple Music. In reality it's the same old argument people make about market share being the metric that determines who will prosper and who will die. How many times has Apple been doomed to extinction because Samsung sells more phones? Then comes the head scratching reports about Apple taking in the majority of industry profits. Get a clue. Spotify has serious business model and revenue issues to deal with.
    tmaybrisance1983jbdragonjony0lostkiwiwatto_cobra
  • Reply 3 of 16
    These analysts are so stupid. They think subscriber growth is so important for streaming services. If a company doesn't have a profitable financial model with a small subscriber base, it doesn't matter how many more subscribers they get. Spotify has never been profitable. They're carrying a free subscription tier that's like a boat anchor to their profitability. There's always this belief on Wall Street that as long as a company has huge market share percentage, it's a great investment. Just a couple of days ago there was some analyst claiming that Spotify was a gold mine and the share price was going to rocket to the stars. Get in now, he said. Typical Wall Street pumping. It's just disgusting how analysts are always trying to deceive investors. I like Spotify and I'm not hoping for it to fail. I just don't like the idea of analysts pumping up a company with a poor business model. It costs unwary investors too much of a loss.
    brisance1983watto_cobra
  • Reply 4 of 16
    applesauce007applesauce007 Posts: 1,538member
    I think Spotify could be an Enron in the making.

    Relatively small company with HUGE number of paying subscribers can't make money?

    It just does not add up.
    lostkiwiwatto_cobra
  • Reply 5 of 16
    Mikey,

    Here we go again. Bad math and why do you link the numbers to another article that is wrong.

    Please explain how 5% growth catches up to Spotify by the summer.  It doesn't. They are also growing and have a bigger lead.

    1. Apple is gaining paying users at a rapid rate of 5 percent per month. As noted by The Wall Street Journal, Apple Music's trajectory will put the service ahead of Spotify in the U.S
    thanks



  • Reply 6 of 16
    slprescottslprescott Posts: 740member
    Mikey,

    Here we go again. Bad math and why do you link the numbers to another article that is wrong.

    Please explain how 5% growth catches up to Spotify by the summer.  It doesn't. They are also growing and have a bigger lead.

    1. Apple is gaining paying users at a rapid rate of 5 percent per month. As noted by The Wall Street Journal, Apple Music's trajectory will put the service ahead of Spotify in the U.S
    thanks



    The answer may be in the last three words: "in the U.S.".  The WSJ is not claiming that Apple Music will overtake Spotify globally by this summer.
    watto_cobra
  • Reply 7 of 16
    radarthekatradarthekat Posts: 2,528moderator
    Very rough math...

    $1.36b in revenue.  If we simply attribute ALL the revenue for the quarter to paying accounts, of which there are 75 million, that gets us $18/account for the quarter, or and average of $6/account per month.  And that’s by attributing ALL the revenue to the paying subs.  So it’s less that $6/account average because some of the revenue comes from the advertising targeted at the 95 million free accounts. 
  • Reply 8 of 16
    Rayz2016Rayz2016 Posts: 4,025member
    It’s almost as if they’re barely breaking even on every customer they add. 🤔
  • Reply 9 of 16
    These analysts are so stupid. They think subscriber growth is so important for streaming services. If a company doesn't have a profitable financial model with a small subscriber base, it doesn't matter how many more subscribers they get. Spotify has never been profitable. They're carrying a free subscription tier that's like a boat anchor to their profitability. There's always this belief on Wall Street that as long as a company has huge market share percentage, it's a great investment. Just a couple of days ago there was some analyst claiming that Spotify was a gold mine and the share price was going to rocket to the stars. Get in now, he said. Typical Wall Street pumping. It's just disgusting how analysts are always trying to deceive investors. I like Spotify and I'm not hoping for it to fail. I just don't like the idea of analysts pumping up a company with a poor business model. It costs unwary investors too much of a loss.
    I generally agree with your point about analysts, even in this case, but it's still a relatively new business so I would argue that subscriber growth is more important than revenue growth is more important than profit, especially when there's a giant like Apple in the game. They need to lock people in so that if/when they do eventually want to pay, they stick with Spotify rather than moving over to Apple. Apple puts its app in front of every iPhone user, Spotify needs to find another way to get people to give them a try.
    1983
  • Reply 10 of 16
    as a consumer of music I couldn't care less which service was the most popular, or made the most money. I use Spotify because after months/years or trying the others, Spotify for me has the best interface, playlist management and curation/matching service available. I get it free with my mobile contract but even when I got Deezer free with my mobile contract a few years ago, I still opted for Spotify. I tried the 3month Apple Music trial and will try it again in future in the hope that it has vastly improved, just as I continually go back to Apple Maps in the hope it has came on leaps and bounds (still waiting).
  • Reply 11 of 16
    carnegiecarnegie Posts: 381member
    Very rough math...

    $1.36b in revenue.  If we simply attribute ALL the revenue for the quarter to paying accounts, of which there are 75 million, that gets us $18/account for the quarter, or and average of $6/account per month.  And that’s by attributing ALL the revenue to the paying subs.  So it’s less that $6/account average because some of the revenue comes from the advertising targeted at the 95 million free accounts. 
    The vast majority of Spotify's revenue does come from the premium tier. It accounted for €1.037 billion in revenue in this past quarter. That's something like $1.24 billion at current exchange rates.

    Spotify's premium monthly ARPU has been coming down, it was €4.72 (around $5.65) for this past quarter. Spotify likely would like to see that rise. But considering how Spotify counts premium users, it isn't as bad as it might seem. A family plan costs $14.99 in the U.S. and can account for up to 6 premium users (as counted by Spotify). And the student plan is $4.99 in the United States.
    edited May 3 airnerd
  • Reply 12 of 16
    airnerdairnerd Posts: 545member
    Very rough math...

    $1.36b in revenue.  If we simply attribute ALL the revenue for the quarter to paying accounts, of which there are 75 million, that gets us $18/account for the quarter, or and average of $6/account per month.  And that’s by attributing ALL the revenue to the paying subs.  So it’s less that $6/account average because some of the revenue comes from the advertising targeted at the 95 million free accounts. 
    I've always thought the "free" users make more money than the subscription ones, because of the ad revenues.  Have never spent a second researching that gut feeling.  
  • Reply 13 of 16
    robjnrobjn Posts: 193member
    Operating loss of 41 million euros!

    This business is mature enough that it should be profitable. They have grown a large subscriber base and yet they make no profit. It’s hard to see how further growth in subscribers can turn things around.

    At best, this business model will only generate very small profits.
    watto_cobra
  • Reply 14 of 16
    jbdragonjbdragon Posts: 1,821member
    Spotify adds more users and loses more money. They haven't made a profit yet. They are so far in the hole, it's going to take years to get out from it IF they can make a profit at some point. It's all the FREE users that are dragging them down the most. But if they did as Apple and had no free accounts, their overall user base would greatly shrink making their over valuation greatly drop and that could do them more harm. They're screw either way.
    watto_cobra
  • Reply 15 of 16
    NotsofastNotsofast Posts: 251member
    The venture capitalists behind Spotify have pinned all their hopes at getting bought out.  They are willing to hemorrhage money while driving up subscribers to attract a buyer that will bundle Spotify with some other service.  Music streaming is a commoditized industry, so the primary differentiator with consumers is price.  Spotify has no other revenue streams and can't raise prices to cover ever increasing costs.  Indeed, if Apple were to lower AM price, Spotify would have to match. Apple is likely to offer bundle price in the future, which will hurt Spotify even more.  Spotify needs a buyer, such as Netflix, Disney, Facebook, etc., to buy them before they go under, which would be bad for Apple because the regulators would go after Apple if they were the only big streaming service left.


  • Reply 16 of 16
    boltsfan17boltsfan17 Posts: 1,995member
    jbdragon said:
    Spotify adds more users and loses more money. They haven't made a profit yet. They are so far in the hole, it's going to take years to get out from it IF they can make a profit at some point. It's all the FREE users that are dragging them down the most. But if they did as Apple and had no free accounts, their overall user base would greatly shrink making their over valuation greatly drop and that could do them more harm. They're screw either way.
    Users like me probably don't help much either. Through my credit card, I get 50% off a monthly subscription to Spotify. I imagine a lot of people are taking advantage of that deal. 
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