Spotify now has 602 million active users globally, and generated €12.97 billion in revenue during 2023. However, the company is still losing money, and after declaring a small profit in Q3 of 2023 is now back in the red, losing €75 million in the final quarter of the year, for a total loss of €446 million.
Addressing the company’s lay-offs at the end of 2023 - and whether the reduction in headcount would impact on the Spotify’s ability to innovate going forward - Spotify CEO Daniel Ek said that the company needed to be “more diligent in shutting down things that have sort of worked but that may not work as well going forward into the future”. He said that being “relentlessly resourceful” and re-allocating headcount investment into the “highest impact use case” would be a priority for the company. “Killing things that sort of work is a great way to re-energise people on the things that really drive value”, he said and warned “you’re going to see that across the company in a pretty big way”.
The company now has 236 million premium subscribers, up from 205 million at the end of 2022, a 15% increase year on year. At the same time ad-supported users grew by 18 million across the quarter, and 84 million year on year, to hit 379 million. However, ad-supported revenues are still a long way from Spotify’s goal to deliver 20% of its total revenue from the ad-supported tier, bringing in just €501 million in Q4 - 13.65% of its total revenues for the quarter - and €1.68 billion for the year.
On today’s earnings call with analysts and other investors outgoing Spotify CFO Paul Vogel - the highest profile casualty of the company’s December lay-offs - addressed the apparent poor performance of the company’s ads business. Saying that the market for ads “continues to be choppy”, he revealed that the company is seeing “high teens” percentage growth in its ads business and that this is “really strong relative to the industry overall”. He also said that despite a recent price increase premium subscriber growth has been “faster than we would have thought” and that these two factors - premium subscriber growth, coupled with the price increase - means that Spotify’s premium revenues are overperforming, meaning that ad-supported revenue is a small percentage of the company’s revenues.
However, he also highlighted the impacts that foreign exchange fluctuations have on the company’s advertising revenues. This is of particular significance when you break out Spotify’s overall monthly active users versus subscribers on a regional basis.
With 65% of premium subscribers concentrated in North America and Europe it would appear from the quarterly breakdown presented in its investor deck that Spotify likely has around 242.5 million ad-supported users in other territories - with approximately 80.5 million in LATAM and as many as 162 million in ‘RoW’ - those countries outside of Europe, North America and LATAM.
Average Revenue Per User for premium subscribers works out to approximately €4.48 a month across the quarter, and projected forward gives annual revenue per premium subscriber of €53.37. However, on the ad-supported side Spotify is generating just €0.44 a month - or €5.29 annually.
With the bulk of that ad-supported revenue likely to come from the company’s 136.5m North American and European users, it suggests that in less developed markets Spotify may be making just pennies per user per month.
Responding to a question about models “beyond the all you can eat framework” of monthly premium subscriptions Ek highlighted the “other pricing mechanics” the company has around the world. “It’s easy to think that Spotify is a single proposition for everyone in the world”, he said, but went on to say that it’s “far from” that model today. “We have day passes as one product that we’re offering in certain markets, and week passes”. The company even offers “scratch cards on a weekly basis” in some countries that people can use to “top up their Spotify listening”.
Ek also addressed Spotify’s recent spat with Apple over implementation of the EU Digital Markets Act. He said that there were “many things like a la carte purchases, superfan [clubs], purchasing of audiobooks, that could be quite meaningful for Spotify’s revenues” were significantly hindered “because Apple insists on taking a 30% cut,” and going on to point out that in many cases this exceeds Spotify’s own cut. Asked whether he expected Apple’s implementation of the DMA to support Spotify’s “vision” Ek lashed out saying that Apple’s stance is “a bit of a farce”. He continued, saying, “On the surface, it looks like they are complying with it. But behind the surface they’re doing pretty much everything to make this such an unattractive experience that no sane developer” would want to agree to the new terms.
