Spotify breaks $2 billion in revenue but still in red

STOCKHOLM, Sweden – Streaming leader Spotify said Monday, May 23, that its losses deepened last year even as the company topped $2 billion in revenue amid the global boom in online music.

The Swedish company founded in 2008 has been at the forefront of the music industry’s turn to streaming, which offers unlimited music on demand, yet it has never turned a profit itself.

Luxembourg-based holding company Spotify Technologies, submitting its annual earnings report, said its revenue jumped 80% to 1.95 billion euros ($2.18 billion) in 2015.

The growth rate is significantly stronger than the 45% it charted in 2014 and slightly higher than the 74% seen in 2013.

“In many ways, it was our best year ever,” the company said in a message to shareholders, describing Spotify as the top driver of growth for the entire music industry.

The company said its revenue from advertisements nearly doubled and that its user base also grew significantly.

Spotify said it had 89 million active monthly users by the end of 2015, up from 60 million a year earlier, of whom some 28 million were paying for subscriptions.

The company’s founder, Daniel Ek, had said in March that Spotify reached 30 million paying subscribers.

But the growth did not erase losses, with Spotify putting a priority on investments at a stage when streaming is increasingly becoming mainstream.

The company’s net losses totaled 173 million euros, nearly 7% deeper than a year before.

“We believe our model supports profitability at scale,” the company said.

“We believe that we will generate substantial revenues as our reach expands and that, at scale, our margins will improve,” it added.

“We will therefore continue to invest relentlessly in our product and marketing initiatives to accelerate reach.”

Growing competition

Spotify’s growth is all the more remarkable as last year marked a pause in its international expansion. It resumed its global push this year, adding Indonesia as its 59th country.

But Spotify also faces growing competition.

Tech giant Apple launched its own streaming service last year and rap mogul Jay-Z has spearheaded rival Tidal, adding to a market that also includes French-based Deezer and US-based Rhapsody.

Deezer’s revenue stood at 142 million euros in 2014, well below Spotify. The company, which put off a market listing in October, has not released figures for last year.

Apple does not break down its revenue from streaming. Rhapsody, which also operates as Napster, posted $202 million in revenue in 2015.

Spotify has sought to expand its offerings, starting video content and recently began a tie-up in the United States with Starbucks aimed at bringing in new subscribers.

But it has also faced prominent holdouts including Taylor Swift, Adele, and Radiohead who have kept some or all of their music off the service, in part due to objections to its free tier.

The soaring growth of subscriptions to Spotify and its rivals led the global music industry to post significant growth for the first time in nearly two decades last year, according to the International Federation of the Phonographic Industry.

But with an accompanying fall in sales of CDs and digital downloads, some players in the music industry wonder whether streaming will offer healthy margins in the long term.

Spotify remains a private company under the control of its founders, Ek and fellow Swede Martin Lorentzon, and has financed its commercial push on its own through investors.

A listed shareholder, Swedish telecom firm Telia, last year made it known that Spotify was valued at $8.2 billion. – Hugues Honore, AFP / Rappler.com