Spotify has published its financial results for 2016, and they reveal that the company’s net loss increased from €231.4m in 2015 to €539.2m ($601.4m) last year.
The company’s revenues grew from €1.93bn in 2015 to €2.93bn ($3.27bn) in 2016. So, Spotify’s income grew by just under 52% year-on-year, but its losses increased by 133%.
Spotify’s operating loss increased from €236.3m in 2015 to €349.4m in 2016, with the company citing “the cost of debt and the impact of foreign exchange rates on our debt and investments” as the reason for the disparity with its net loss.
As for costs, in the financial filing, Spotify cited “product development, international expansion, and a general increase in personnel” as the key elements in its operating loss for 2016.
The financials reveal that Spotify spent €206.9m on product development in 2016; €417.9m on sales and marketing; and €175.2m on general and administrating costs.
The company’s average headcount grew from 1,581 in 2015 to 2,162 in 2016, with wages and salaries expenses of €231m that year: an average salary of €106.8k.
Spotify ended 2016 with 126 million monthly active users, with 48 million of them paying for the service. That’s up from 91 million and 28 million respectively at the end of 2015. Earlier today Spotify revealed it now has 140 million active users.
The company generated €2.64bn from premium subscriptions in 2016, and €295m from advertising – 89.9% and 10.1% of its overall revenues respectively.
Due to cost of revenues, the gross profit on premium subscriptions was €483.8m, while Spotify’s ad-supported business recorded a gross loss of €33.3m.
€1.17bn of Spotify’s 2016 revenues came from the US – just under 40% – with the UK its next biggest individual market with €339.9m (11.6%).
Interestingly, Spotify said in its results that the launch of its family plan, where up to six people in a household can use its service as part of a $14.99 monthly subscription, “resulted in strong subscriber growth”.
However, the company noted that “this strong growth did not materially impact revenue performance in the year as it was partially offset by the price reduction on the existing family plan subscriber base” – previously people had been paying an extra $4.99 per family member on their plan.
As before, the financials set out Spotify’s belief that it can move into the black at some point in its future.
“We believe our model supports profitability at scale. 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,” claimed the management report.
“We believe we will generate substantial revenues as our reach expands and that, at scale, our margins will improve. We will therefore continue to invest relentlessly in our product and marketing initiatives to accelerate reach.”
Spotify’s standpoint is also that its losses as a percentage of its revenue continue to shrink, which it hopes means it is scaling towards an operating profit in the future.
Also noteworthy: Spotify’s recent licensing renewal deals with major labels and publishers included minimum guarantee commitments of around €2bn over the next two years. So far, it has renewed with Universal Music and Merlin on the label side.
Spotify also said that it has spent €39m on acquisitions of four companies since the end of 2016.
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Interesting read, thanks for putting it together. I guess they’re not so worried since once they stop investing in expanding as aggressively, all that extra cost comes back as profit. Looks like the long game and having already been around a long time now (I think I signed up in 2009!) it’s probably working.