Spotify posts another big operating loss, but growing subscribers

Posted:
in iPod + iTunes + AppleTV edited January 2023
Spotify said in its Q4 earnings report that while it bled another $231 million in cash, subscribers rose to 489 million.




Following its laying off of 6% of its workforce, Spotify has reported mixed results for its latest financial earnings.

"In hindsight, I got a little carried away and over-invested relative to the uncertainty I saw in the market," Spotify CEO Daniel Ek told Deadline. "Podcasting has been a drag on the gross margin side... Some investments worked out, some haven't. Some shows worked, some didn't perform as we expected."

"And that is a sign of maturing... you go for growth first and then you seek efficiency," he continued. "But, generally, you will see us focus on efficiencynot just growth at all costs."

"[Monthly Active Users] net additions reached a quarterly record-high of 33 million in Q4, 10 million above guidance," said the company in its full financials document. "Subscriber growth also materially outperformed, exceeding guidance by 3 million net additions."

However, the company again operated at a loss. For Q4 2022, that operating loss was $231 million, and it follows a Q3 2022 loss of $228 million.

For comparison, Q4 for 2021, saw an operating loss of $7 million.

Spotify also reports a Free Cash Flow figure, which was down from $103 million in Q4 2021, to a loss of $73 million in the latest quarter.

"As expected, our Free Cash Flow was negative in the quarter," continued Spotify, "however, full year Free Cash Flow remained positive and we expect this trend to continue moving forward on a full year basis."

Spofity earnings summary. Source: Spotify
Spofity earnings summary. Source: Spotify


Spotify blames the losses in part on currency movements, and an "unfavorable geographic mix of employee costs relative to revenue." It also invested in "new podcast content and product investments," though the loss of its head of content Dawn Ostroff, suggests it may be backing away from podcasts.

"Looking back on 2022 in its entirety, we are pleased with our overall results," it said. "Each year presents certain challenges and opportunities and, over the past 12 months, we largely delivered on our internal goals and we are excited about the momentum we are building heading into 2023."

That momentum follows the laying off of 600 staff. In the blog post announcing the redundancies, Spotify CEO Daniel Ek said that "personally, these changes will allow me to get back to the part where I do my best work."

Update: 10:20 ET with quotes from Daniel Ek.

Read on AppleInsider

Comments

  • Reply 1 of 12
    red oakred oak Posts: 1,095member

    “Where I do my best work”.    What an inflated ego

    If you can’t make a profit with 400 millions subs, your never going to.   Ever.   But go ahead and blame Apple for all your business model woes 
    JanNLAlex_Vmark fearingdanoxwatto_cobra
  • Reply 2 of 12
    thttht Posts: 5,530member
    They were 70m in the hole in cash flow. 600 layoffs is about 30m save per quarter. More layoffs coming? If their net cash flow is negative, they aren't going to make payroll, right?
    watto_cobra
  • Reply 3 of 12
    They seem to be running a scam. Much like the 'old' internet days - "we have a business that gives way free waffles. At some point we will have billions of customers. Then we will, ah, figure out some way to make money"... PERHAPS the entire business is rooted in B.S.
    charlesatlaswatto_cobra
  • Reply 4 of 12
    danoxdanox Posts: 3,043member
    Tweet Tweet…… it’s Apple’s fault. :smile: 
    edited January 2023 watto_cobra
  • Reply 5 of 12
    cgWerkscgWerks Posts: 2,952member
    They were just going for numbers (which they partly achieved), and had enough ‘free’ money to spend like a drunken sailor. But, I think those days are over. Now they will have to start turning a profit and doing realistic business. They blew a ton of money trying to force their way into podcasting, and don’t have a lot to show for it (fortunately, they want to control and ruin it, it seems).

    They should just stick to being a solid music streaming service, but I’m not sure their model based on that works financially.
    watto_cobra
  • Reply 6 of 12
    chadbagchadbag Posts: 2,007member
    You know what they call it when you keep doing the same thing over and over and expecting a different result…
    cgWerkswatto_cobra
  • Reply 7 of 12
    Spotify is still the best music player available.
  • Reply 8 of 12
    danoxdanox Posts: 3,043member
    Spotify is still the best music player available.
    Actually, Flac isn’t that bad available for download at the Apple Store, very good, and stays out of your way, allows you to listen to music and nothing but music.
  • Reply 9 of 12
    Watched the Netflix short series on this on Saturday. I would have thought if they couldn’t make the financials work via leveraging peer-to-peer redundancy and providing for others, it makes even less financial sense to move to using all their own servers. I found it interesting that it involved a little “what if?” Into 2025 where they’re looking to get another billion in funding.

    if they nave 400 million users now (especially monthly) a billion $ doesn’t go far, that’s $2.50/user should that projection remain the same borrowing with the current number of users.

    They’ve now got what seems like sufficient scale that there are a couple things going:

    1. they should have economies of scale with so many users, even with servers around the world, if they do it right. Of course, a big emphasis in that series was on latency, so perhaps demanding too low of a latency ruins that
    2. They’re already in the realm of the lass of big numbers that also means in practice, since they’ve been around long enough and enough people know of it, if they were going to get more people as customers, they most probably would already have them: there’s a much harder fight to get more paying customers beyond a certain point, and there’s Pareto’s Law which says 20% of your effort gets 80% of the benefits and the other 20% (if you go for it) will take 80% of the effort. They’ve likely already dug into that attempt at the unprofitable 80% of the potential market.
    There is also the issue that music is an IP commodity. It makes sense as a loss leader to get people to buy other goods and services, but you need to have profitable goods and services that fit, and it appears they’ve not found that yet.


    muthuk_vanalingamwatto_cobra
  • Reply 10 of 12
    thttht Posts: 5,530member
    There is also the issue that music is an IP commodity. It makes sense as a loss leader to get people to buy other goods and services, but you need to have profitable goods and services that fit, and it appears they’ve not found that yet.
    I think the typical plan is to become a monopolist aggregator for music streaming, to a point that the music industry relies on Spotify for money, and has no other options. If that happens, Spotify will squeeze the music labels for cheaper, more profitable, licensing terms.

    Paying licenses for music IP is like 90% of Spotify's costs. Not many options. They create a different revenue structure, like podcasts, or they have to run a much leaner operation. I don't know if they can actually make a profit with a much leaner operation.
    anonconformistwatto_cobra
  • Reply 11 of 12
    cgWerkscgWerks Posts: 2,952member
    tht said:
    … They create a different revenue structure, like podcasts, or they have to run a much leaner operation. I don't know if they can actually make a profit with a much leaner operation.
    I think they thought they were going to create an ad-revenue machine by taking over podcasting. They paid a *lot* to bring some big ones as exclusives, and bought Anchor to try and get people to create new shows on the platform. The latter worked, but generated millions of ‘dead’ podcasts. The advertising didn’t work, I believe, because their listenership numbers are fairly low, besides a couple of the biggest shows. (It is speculated they had advertisers, but couldn’t deliver the ‘inventory’ of spots to place them.)

    Since they’ve kind of become the enemy of the podcast industry, I hope they fail, or at least go back to focusing on music.
    stompywatto_cobra
  • Reply 12 of 12
    tht said:
    There is also the issue that music is an IP commodity. It makes sense as a loss leader to get people to buy other goods and services, but you need to have profitable goods and services that fit, and it appears they’ve not found that yet.
    I think the typical plan is to become a monopolist aggregator for music streaming, to a point that the music industry relies on Spotify for money, and has no other options. If that happens, Spotify will squeeze the music labels for cheaper, more profitable, licensing terms.

    Paying licenses for music IP is like 90% of Spotify's costs. Not many options. They create a different revenue structure, like podcasts, or they have to run a much leaner operation. I don't know if they can actually make a profit with a much leaner operation.
    That wasn’t stated explicitly in the Netflix series, but was heavily alluded to as to how they could borrow another billion from a bank, that they had what was effectively a monopoly as of the 2025 timeframe, as while there were a number of other smaller streamers, none were anywhere near their size. As has been seen between smartphones and who has the high-end of the market (even with not the numbers-dominant platform for active users) only the biggest have any economies of scale with which to potentially make a profit: all the others (except for parts manufacturers, of which Samsung has a dual role) are fighting to reach the bottom and still survive, without much in-house innovation, because their profit margins are so thin they can’f reinvest, as they’re selling commodities. It’s a terrible business selling commodities unless perhaps nobody else sells the one you do.
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