Spotify paid subscriptions grew faster than expected in the first quarter of the year, but the company is still losing money.
The good news for the streaming giant is that paid subscriptions were up 15% to 210M, ahead of analyst expectations and the company’s own guidance …
Spotify paid subscriptions and active users up
Monthly active users were up even more, a 22% rise to 515M people (including free subscribers). The WSJ reports that it also enjoyed revenue growth.
Subscriptions, which make up most of Spotify’s revenue, climbed 14% to €2.71 billion. Revenue from advertising grew 17% to €329 million. Ad revenue, which has become a particular growth area for Spotify as it expands its podcast business, accounted for about 11% of total revenue for the quarter—a small downtick from prior periods.
But company continues to lose money
However, the company continues to lose money, reporting a loss of €225M ($248M) for the quarter. A handful of individual quarters aside, this is almost always the case.
Spotify has always insisted that this is expected – that it continues to prioritize growth and investment in new features over profitability.
Top comment by Doug
There is no indication that Apple, Google or Amazon are running their music business at a loss as the author implies. It is true they all could it is not exactly a business model Apple has ever embraced. Sure I think they are eating costs on AppleTV+ as they build up a back catalog but other than that I believe their services businesses are profitable and need to be because Apple is counting on them to show continue revenue and profit growth.
Spotify pays less to artist, has the largest subscriber base and supports what should be a profitable ad supported tier. They are trying to drive engagement to areas where costs are lower (podcasts) so I don't understand why they can't/don't turn a profit.
In the case of this quarter, there was a somewhat ironic additional reason.
In January, Spotify laid off about 600 employees, or roughly 6% of its workforce, as part of broader cost cutting after a spending spree during the pandemic. The company on Tuesday said severance-related charges associated with the layoffs added to operating expenses in the quarter. The company said higher personnel costs during the quarter were driven primarily by its head count expansion in 2022.
But it’s hard to see how the company will ever reach the point of returning a consistent profit. It’s competing with streaming music services from Apple, Google, and Amazon – none of which have to turn a profit. All three see their services simply as an ecosystem benefit, and a way to drive hardware sales. Spotify, in contrast, has no other revenue stream, and had to quickly abandon its only hardware product.
Spotify’s moves of late have seemed increasingly desperate. It made a major move into podcasts, with many subscribers unimpressed with the way it mixed the two completely different services, and last month made an even bigger mess by mixing in music, podcasts, audiobooks, and video into a single feed.
Apple Music may not have an impressive subscriber base (the company long ago stopped reporting numbers), but its app is solely focused on music, with podcasts in a standalone app. Even classical music gets its own app.
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