Spotify has published its consolidated financial results for 2013 – figures that cover its global business that year, rather than just the individual markets like the UK and France where its subsidiaries have published their own figures recently.

The toplines: Spotify’s revenues rose 73.6% to €746.9m ($931.7m) in 2013, while its operating loss grew 16.4% to €93.1m, according to the results, published this afternoon in Luxembourg. The company’s “cost of revenues” – royalties and other distribution costs – were 82.5% of its turnover, down from 90.5% in 2012.

Why did operating losses increase, if Spotify’s gross profits – its turnover minus its cost of revenues – improved? 2013 saw the company’s spending on research and development grow by 91.6% to €72.7m, and its sales and marketing costs grow by 104.9% to €110.8m, as it went from 17 markets at the start of the year to 55 by the end.

Spotify ended 2013 with 36m active users, including 8m paying subscribers – figures that have since grown to 50m and 12.5m respectively. In 2013, Spotify made €678.7m from subscriptions and €68.2m of advertising – up 81.1% and 22.8% respectively – with subscriptions now accounting for 90.9% of its turnover.

The results also provide a firm figure for Spotify’s acquisition of The Echo Nest in March this year: €55m, with €6.6m of that paid in cash and the rest in shares.

Click on the image on the right to make it bigger.


The headline: revenues growing sharply, but operating losses increasing too, which sceptics are likely to see as more proof that streaming is an unsustainable business model beyond regular venture capital injections and an ultimate IPO or sale.

Spotify sees it differently, according to its letter to shareholders with the 2013 results. “We believe that music has mass market appeal – and as such, we believe we are just at the beginning of a much larger market opportunity. We believe our model supports profitability at scale,” claimed the company’s management team.

“ We have already proven that we’ve created real value for our users, and we know that the more time people spend with our product, the more likely they are to become paying subscribers. We believe that we will generate substantial revenues as our reach expands, and that, at scale, our margins will improve.”

Spotify also pressed the claim for its addition of a free tier within its mobile app as key to that future, describing 2013 as “a clear transition from desktop to mobile” thanks to the new feature.

“Today, the majority of all new users signing up for Spotify are mobile. Making this transition from desktop to mobile means that our front door is always open,” explained the letter. “We know that a significant number of users who activate and engage on our platform convert over time to becoming paid subscribers.”

Spotify ended 2013 with €215.7m of cash at bank and on hand. Meanwhile, it reported “minimum royalty payments associated with licences” commitments of €127.4m within a year, and €366.1m between one and five years.

One last point: Spotify’s net losses after tax fell from €86.7m in 2012 to €57.8m in 2013, so why have we focused on operating losses? Check the “Finance Income” section of the image above: elsewhere in the report, it reveals €38.7m of “fair value gains on derivative liability” – relating to the value of share options. So net losses are not an ideal indicator of Spotify’s business as it’s currently running.

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