SoundCloud’s latest financial results have been published and they show growing losses even before the company inks licensing deals with major labels and publishers.

SoundCloud’s revenues grew by 40% in 2013 to €11.28m, with the company putting it down to “a significant increase in the number of subscribers” from its community of creators.

However, SoundCloud’s net losses increased faster, by 86% to €23.11m in 2013. “Our overhead base has increased faster than our revenues,” as the company put it in its accounts filing. Well, quite.

We’ve been digging back into SoundCloud’s financial results for previous years to get a sense of the company’s progression. SoundCloud’s revenues were €1.37m in 2010, €4.32m in 2011, €8.04m in 2012 and €11.28m in 2013.

However, its net losses grew from €1.55m in 2010 to €3.74m in 2011, €12.43m in 2012 and €23.11m in 2013. Or, to put that another way, SoundCloud’s losses were 113% of its revenues in 2010, 87% in 2011, 155% in 2012 and 205% in 2013.

“We are in a phase of growing SoundCloud into the market leading platform for listening to, creating and sharing sound,” explained the company in its report. “This has necessitated investment in technology, headcount and marketing.”

SounCloud ended 2013 with net current assets of €37.59m, but since then has raised a further $60m (€47.31m) in its Series D funding round, so it’s not in danger of running out of cash in the short term.

That headcount growth is worth watching though: the company’s average headcount grew from 109 in 2012 to 195 in 2013, meaning that in the latter year, its wages and salaries bill alone – €12.58m – was more than its total revenues.

This is not yet the familiar story of a digital music service posting heavy losses due to royalty payments, because only now in 2014 is SoundCloud negotiating with major labels and publishers to strike licensing deals.

A recent report in the Financial Times suggested those talks are currently in a “stumbling block” phase due to all three majors “holding out for much better terms”.

So, SoundCloud’s 2013 financials don’t tell us much about its viability as a business once those deals are signed. That said, the results also cover a time before SoundCloud’s addition of advertising to its platform in 2014, and that’s expected to become an important source of revenues for the company.

The 2013 financials are a snapshot of SoundCloud pre-ads and pre-licences, so they can’t tell us what the company’s finances will look like in 2015 when both of those have kicked in.

Still, what the 2013 results do show is that running the ‘YouTube of audio’ with 12 hours of sound being uploaded every minute is a very expensive business even before you start paying rightsholders.

That in itself is useful background to understanding the impasse that SoundCloud’s label talks have reached.

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Stuart Dredge

Music Ally's Head of Insight

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