Growth For Spotify, But At What Cost?
A few days ago Spotify announced it had surpassed 200M worldwide registered users, which is up 9M from their last earnings call on November 1st. Keep in mind this is a total audience number, which includes both paid ad-free subscriptions and free ad-supported accounts. Past data has shown roughly a 45/55 split between the two tiers of service, so we can assume about 90M paid subs within the 200M total.
While 9M new accounts within a three month period is an impressive growth number, Spotify still needs to translate that growth into profitability. While their Q4 earning call isn’t happening until February 6th, it’s widely assumed the music streamer will have posted an operating loss of more than $1B in 2018. These losses are due to an overdose of free trials, family plan discounts, and an under-monetization of their addressable audience, which all adds up to more royalty payments going out the door than revenue coming in.
Up until now Spotify has won over investors with a narrative of growth now/profits later, but that message may be wearing thin. After opening at an IPO share price of $132 the stock climbed to $196 in August, but has now retreated back to $130. I think it’s safe to assume all eyes will be on Spotify during the first week of February to see if they can finally start converting audience growth into profitability.