Daniel Ek, CEO of Swedish music-streaming service Spotify (Toru Yamanaka/Getty Images)

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.

Claire Yubin Oh, David Crowther

11/13/24 10:28AM

happy sunshine dance morning

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.

Jon Keegan45m

FT: Meta considering “tens of billions” in new capital to fund AI

Just days after Google announced a monster $85 billion upsized equity raise, the extremely profitable Meta is seeking to sell “tens of billions of dollars” in stock, according to a new report from the FT.

Meta is planning on spending between $125 billion to $145 billion on AI capex this year alone.

Shares dropped more than 5% on the news.

Meta weighs big equity raising after blockbuster Google deal

Rani Molla

Meta is supercharging its subscription businesses

The free-app giant never really cared about recurring revenue. Now, it’s launching paid plans for all sorts of stuff.

Jon Keegan6h

FT: Anthropic staff helping the NSA use Mythos for offensive cyberattacks

Anthropic’s Mythos AI model was deemed too dangerous to release to the public, with the company citing its ability to orchestrate novel cyberattacks.

And that’s just what the National Security Agency is doing, with the help of Anthropic staff embedded at the agency, according to a report from the Financial Times.

Only a small number of companies and US allies have been given access to the advanced model, which means America’s adversaries have not had the chance to shore up their defenses against the AI model’s new offensive capabilities.

The arrangement is especially unusual as the Pentagon has deemed Anthropic’s AI a national security supply chain risk — effectively blacklisting it for defense work — in response to the company’s refusal to allow its technology to be used for any legal application, which could include autonomous killing or mass surveillance. Anthropic is currently suing the US government to fight the determination.

US National Security Agency using Anthropic’s Mythos for cyber attacks

Rani Molla7h

Longtime Tesla bear JPMorgan upgraded Tesla and raised its price target to $475 from $145

For more than a decade, JPMorgan was Wall Street’s most stubborn Tesla skeptic, anchored by auto analyst Ryan Brinkman’s strict focus on traditional car fundamentals and near-term delivery numbers.

But JPM recently handed coverage of the stock to a new analyst, Rajat Gupta, who is throwing that playbook out the window. In a note Friday, the firm upgraded Tesla to “neutral” from “underweight” and raised its price target 228% to $475 from $145. (The analyst consensus on FactSet is $403.) Instead of focusing on the company’s struggling vehicle business, the new analyst is orienting himself more toward Tesla’s idea of the future, now modeling Tesla’s physical AI and robotaxi fleets all the way out to the year 2040.

Here are the main reasons for the capitulation:

Looking past the car lot: Gupta argues that Tesla “is at the forefront of physical AI, entering uncharted TAMs” and therefore “deserves the benefit of the doubt to be valued on LT earnings potential” rather than near-term speed bumps.
Unmatched vertical integration: Tesla’s control over everything from battery cells to custom silicon gives it a massive moat. JPM notes this starting point advantage is “unmatched at an industrial level scale” and “still somewhat under-appreciated and misunderstood.”
The AWS flywheel effect: Deploying Optimus robots inside its own factories “should not only lower COGS for the base automotive business, but more importantly, help validate the product at an industrial scale.” Gupta called it “a classic flywheel effect, somewhat analogous to AWS and Kiva at AMZN.”

For Tesla bulls who have argued for years that this is an AI company and not a carmaker, JPM’s sudden $3.9 trillion valuation model is the ultimate validation.

Anthropic ponders self-improving AI

Anthropic says Claude already writes 80% of its code. A new post asks what happens when the models can improve themselves — and whether anyone could stop them.

Jon Keegan7h