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Spotify Hits 180 Million Users — and Loses Even More Money

Streaming service’s second-quarter report reveals it’s losing twice as much money as it did last year

Spotify logo is presented on a smart phone screen in Berlin, Germany, 24 February 2018. According to the media, Spotify co-founder Daniel Ek does not want to lose control of the upcoming IPO of the world's largest music subscription service. Investors who want to invest in the upcoming IPO of Spotify, apparently only get shares that give them less influence than Ek.Upcoming IPO of the world's largest music subscription service Spotify, Berlin, Germany - 24 Feb 2018

Music-streaming service Spotify released its second quarter report, giving an outlook on the company's future.

Hayoung Jeon/EPA-EFE/REX Shutterstock

The biggest music-streaming service in the Western world is still attracting new users, still adding more subscriptions and still unprofitable.

Since Spotify’s debut on Wall Street earlier this year, updates to its key numbers have been highly anticipated — because the market performance of the company, as the leader in the streaming industry, could either accelerate or cripple the music business’s tentative regrowth. In its Q2 report to shareholders on Thursday, Spotify revealed numbers that are both reassuring and not.

Spotify posted net losses of €394 million ($461.4 million), which is more than twice the €188 million ($220 million) that it lost in the same period in 2017. Its operating loss, €90 million ($105.7 million), was also 14 percent higher than in the same period in 2017 — mostly because of a cash expense related to its New York Stock Exchange debut and higher-than-anticipated accrued social costs, the company said. While it has been operating at a loss since its 2008 launch, executives expect the service to eventually become profitable once enough people sign up for its subscription tier to offset the high royalties payouts it makes to music rights-holders. But by the looks of the latest numbers, that turning point doesn’t seem to be coming anytime soon.

There is good news for the company, though. Spotify finished the quarter with a new record of 180 million monthly active users, and it forecasts continued growth to 193 million users for the quarter ahead. Premium subscribers are up to 83 million, which represents a 40 percent year-after-year growth. Ad-supported users, aka the other half of the company’s users which are listening to music on the free tier, grew to 101 million at the end of Q2, representing 23 percent year-after-year growth. Those numbers should quell some of the worries that music-streaming services might have reached critical mass; Spotify is clearly still growing, albeit a bit slower.

And off the backs of premium subscriber growth, revenue has indeed inched up a bit, to €1.3 billion ($1.5 billion) — a 26.4 percent year-over-year increase and a 12 percent jump compared to last quarter.

Prior to the fiscal report’s release, analysts had been optimistic about Spotify’s future in the markets. “Waiting for a better entry point into the stock has not worked and we believe the Spotify platform is simply too powerful/valuable to wait any longer to embrace SPOT,” popular media and tech analyst Richard Greenfield wrote in a memo Wednesday. Spotify’s stock has remained relatively stable over the months since it became a public company, boding well for other music-technology startups that are considering following suit. (Eventbrite and Sonos both filed for IPO after Spotify’s debut, and Tencent Music Entertainment, the leading streaming service in China, has one in the works as well.)

But others, like Midia Research’s Mark Mulligan, advise much more caution, pointing to the previous volatility of music companies on the market. Mulligan told Billboard: “Look at how much damage was done to Pandora’s stock not because it was losing millions of users or because its ad business was going down, but because Spotify provided a new level of hope for the industry. That’s all it took. For investors, tech stocks have to deliver on their promise to change the world. As soon as that promise starts to fade, investors will jump ship.”

The music-streaming company hasn’t been in its listeners’ good graces lately, after a full-platform marketing campaign with Drake, timed with the release of the rapper’s album Scorpion, drew more backlash than excitement. Spotify also botched a rollout of a well-intentioned but ultimately controversial content policy earlier this year and was accused of trying to be the music industry’s moral police. But the service is stubbornly denying any intentions to be more than a distribution platform, despite evidence to the contrary. During Spotify’s earnings call Thursday morning, CEO Daniel Ek explicitly said Spotify does not think of itself as a record label — “nor do we have any interest in becoming a label.”

In This Article: music industry, Spotify

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