Spotify is making more money than ever before
The Swedish streaming platform has fewer employees, more users, and higher prices — the result is big profits after years of losses.
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Spotify is singing a tune that investors are loving in early trading, with the company revealing in its latest earnings report that it’s on track to record its first full year of profit since it was founded 18 years ago.
As Spotify battled to make a name for itself — amongst some very large competition from Apple, Amazon, Sony, and others — the company found itself working off a slim margin. Indeed, from 2013 to 2017 the company averaged a gross margin of just 15.8%. In the latest quarter it was nearly double that, coming in at 31.1%, which was almost a full point above Wall Street expectations. Part of this uplift was driven by its increasingly upbeat core-growth metrics, with monthly-active-user growth accelerating 11% year over year to 640 million and its paid subscriber count hitting 252 million. (For context, Netflix has 283 million global subscribers.)
The group’s rocky year in 2022 was the turning point for Spotify’s new focus on profitability: after slowing subscriber growth and competition from rivals like Apple Music stifled the firm’s profits, the streaming platform blasted on a dramatic cost-cutting effort at full volume, including a mass layoff, a sharp cut in marketing budget, and a price hike of its paid premium plan. Those measures are dropping through to the bottom line, as Spotify begins to unwind years of losses with its most profitable quarter ever (operating profit of €454 million).
For years, it hasn’t been clear exactly how the riches of the streaming revolution will be shared between artists, music fans, record labels, platforms, and music publishers. This latest quarter is just the latest evidence that the tech platforms are in a pretty good position to capture the emerging pool of profits. As of Tuesday’s close, Spotify shares were up 123% for the year.
