Spotify is still bleeding money but predicts a return to profitability

AppleInsider

People are flocking to Spotify as shown by the company's recent financial results, but it continues to bleed over a quarter-billion dollars per quarter -- even after its layoffs in January.

Spotify

Spotify has worked on adding more content to its service in the form of podcasts and audiobooks, and redesigned its app in a bid to keep users engaged with the platform. It had strong user growth in the first quarter of 2023 but posted another financial loss.

The streaming company recorded 515 million active monthly users, a 22% increase from the previous year. That represented Spotify's largest-ever first-quarter increase and outperformed projections by 15 million.

According to the company, growth was seen across almost all age groups and in developed and emerging economies.

The number of people who pay to subscribe to Spotify was up 15% to 210 million, also exceeding Spotify's expectations, according to The Wall Street Journal. But it posted a loss of around $248 million in the first quarter of 2023, more significant than its $231 million revenue drop in the fourth quarter of 2022.

Executives have stated that as the company attempts to expand into new types of audio and draw customers worldwide, investment will take precedence over profit. However, they expect Spotify's profits to improve in 2023.

Approximately 600 people, or about 6% of Spotify's personnel, were let go in January as part of a more extensive cost-cutting effort following a spending binge during the pandemic. The business reported on Tuesday that the layoffs' accompanying severance costs increased operating expenditures for the quarter.

For the current quarter, Spotify forecasts monthly active users to grow to 530 million and premium subscribers to 217 million. Additionally, it expects its revenue to grow to $3.5 billion.

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chasm

Spotify first started in 2006, and has never overcome those early losses, even though there have been a few (and far between) quarters of net profits, and continues to lose far more money than it makes over the past 17 years.

To be fair, Spotify essentially invented and popularized streaming on-demand music services, and they have a vastly larger total audience than any other service. Given that its audience is at least five times the size of its nearest competitor, Apple Music, how can it continue to lose so much of its investor’s money?

It should be noted that Apple Music doesn’t break out its numbers, but it is estimated to be approaching 100 million paying subscribers, and given the incredible amounts of income the Services division is reporting as a whole, one has to expect that Apple Music became profitable very shortly after launching and continues to be profitable.

Spotify has every advantage here, but struggles to make a dime. Even the free tier has ads, which in theory should be making Spotify money, but it sure doesn’t seem like that part of the business is working. On top of this, Spotify has been sued a fair few times for being slow on royalty payments or just plain trying not to pay, while Apple Music can pay nearly three times as much in royalties per stream and still rake in the cash.

Something is really siphoning off Spotify’s income is the only conclusion I can come up with. Probably a combination of too many promotional premium trials tied in with other products, and excessive executive compensation. Either way, from here it looks like a really bad investment for shareholders hoping for a good return on investment, at present you won’t see any return at all.

If you NEED half a billion customers, with half of them being paying subscribers to make a real go of something, your business plan needs a rethink IMO.

PS. Bonus: they’re ruining the podcast world while they’re at it — another venture they’ve thrown a tonne of money at that has not rewarded them in the slightest.

r_mari

Apple makes money because it only provides services that can make money.
Spotify otn the other hand is like Google. They provide everything including the kitchen sink.
But Google is famous for numerous failed projects.
The only thing keeping Google afloat are its advertising business and search business.
which by making billions, can support numerous failed projects.

Spotify has to get rid of its free service with ads if that doesn't make money.
Apple only gives you free as a loss leader temporarily until you get hooked in to paying them.
Spotify should do the same.

The biggest problem for Spotify is that it has shareholders and is a public company.
This puts enormous pressure to turn a profit in the short run.
This means making bad decisions for the long term.
Apple on the other hand primarily looks long term.

EsquireCats

Spotify's business has always been in shambles, that's why they spend a very large amount of time attributing their failures to Apple and Google.

Looking at Spotify's public finances we can effortlessly divide their revenue by paying user count to reveal that they heavily subsidise members. Spotify have over-incentivised heavily discounted paid accounts to get conversion, and this is the weight that holds the company down. 

To enhance their business Spotify screw artists and use PR to attack their various boogeymen. Their press releases are full of lies:

- They argue that Apple harms them by locking them out of platforms such as their speakers and carplay. Yet even when the APIs for these become available Spotify is either slow or completely non-existent even years after the launch. It can't be a cost/development issue, as smaller players with less resources are available on these additional Apple-run platforms.

- They argue that Apple 30% cut harms their revenue, yet not one single user is at the 30% rate, nor do they even offer the ability to subscribe through Apple.

- Furthermore, the overwhelming majority of paid Spotify users signed up through their website, yet Spotify continue decry that Apple are directly harming them even though Spotify chose this approach.
- Spotify simultaneously believe they should have the right to advertise a route to payment on their website (against the terms they agreed to), while providing Apple no payment for the cost of distributing their app to hundreds of millions of users. Every single update that they push is a new cost for Apple, amongst many other costs of hosting their app. So all things being equal, if Spotify wish to break that agreement, why should Apple keep their side of the deal? Why shouldn't Apple be sending them hosting and distribution costs?
- Spotify do not compete in the media landscape whatsoever, all other media providers have expanded into other offerings such as video or enhanced audio technologies. Spotify still hasn't delivered on enhanced audio years after their published launch date.

The company's board needs to be vacated and replaced with people who aren't freaking idiots.

danox

Spotify hopes to make money on the back of Apple computer, that’s their business plan in the EU.

teejay2012

I don't think Daniel Ek ever wrote a credible business plan for Spotify. He seems to never be able to make the right decisions. If I were a shareholder, I would push to have him removed. Rather than pushing the EU to apply apply punitive regulations on competitors like Apple, Spotify needs to identify where they are bleeding from and staunch those losses. You don't have to look far.  Spotify gave $200M  to the malignant Joe Rogan? $310M to FC Barcelona for a 'partnership'... why? Yet Ek constantly fights to pay songwriters less, even though they are the foundation for Spotify...? I would not want Spotify to disappear as competition is always good for users but if they did, I would not cry.