By Sven Grundberg
STOCKHOLM--Spotify boosted its revenue at a fast clip last year,
but its latest earnings report shows that the music-streaming
company is still miles away from becoming a profitable
business.
Spotify said its net loss last year was EUR57.81 million ($71.7
million), compared with a restated net loss of EUR86.72 million in
2012. A company spokeswoman said Spotify restated its 2012 earnings
after reviewing accounting procedures, to ensure they met global
accounting standards.
The 2012 loss was much wider that its previously stated net loss
of EUR58.66 million.
The numbers were made public Tuesday in the consolidated
earnings report of the company's Luxembourg-based holding company,
Spotify Technology S.A. Since it isn't a publicly listed company,
it won't need to report its 2014 results until the fall of
2015.
Spotify was established in 2006 and first launched its
music-streaming application in 2008. It has grown into one of the
largest digital-music providers next to Apple Inc.'s iTunes, Google
Inc.'s YouTube and Pandora Media Inc.
Despite its fast growth in user and revenue figures, Spotify has
posted massive losses since its inception. Its operations are
currently funded by a large group of outside investors, including
several venture-capital companies as well as Goldman Sachs Group
Inc and Hong Kong business magnate Li Ka-shing.
All in all, the Swedish-founded service has raised over $500
million in funding to date to expand its services, with the latest
round made last year in a deal that people familiar with the matter
said valued the company at over $4 billion. This year, the company
hasn't raised any additional capital.
While Spotify's founders and largest shareholders Daniel Ek and
Martin Lorentzon aren't ruling out listing the company's stock
publicly, the company has no immediate plans to commence an initial
public offering at this time, a person familiar with the company's
thinking said.
Spotify's revenue rose to EUR746.86 million in 2013, from
EUR430.28 million in 2012, the company said, on the back of a rapid
expansion of the business into several new markets. The company
earns a lion's share of its money through its paying subscribers,
who pay on average of $120 a year for unlimited access to a large
catalog of music. It also offers a more limited, ad-funded service
to draw in new users. Last year, 91% of the company's revenue
stemmed from subscriptions, while the remaining 9% of its income
came from its advertising business.
In a note to shareholders, Spotify said it believes its business
model "supports profitability at scale," but added it faces fierce
competition for both users and listening hours. In addition to
smaller competitors such as Rdio, Deezer and Pandora, giants such
as Apple and Google are getting serious about music streaming, with
Apple about to integrate the Beats Music streaming service into
iTunes and Google launching a subscription option for YouTube.
Spotify's large losses partly come down to its rapid
international expansion. In 2013, its operating loss widened to
EUR93.10 million from EUR79.96 million in the preceding year, with
the operating loss from 2012 revised from its previously stated
loss of EUR52.87 million. The company cited "substantial
investments" into its international expansion, product development
and growing head count as the main reasons for the deeper operating
loss.
Last year alone, Spotify launched its services in 32 new
markets, including Mexico, Singapore and Turkey, and increased its
total number of active users to 36 million by the end of the year
from 20 million at the end of 2012. This expansion has continued
this year, and earlier this month, Spotify said it had reached over
50 million active users, of whom over 12.5 million were paying
users.
Some 70% of Spotify's revenue goes directly to music license
holders, many of whom remain wary about licensing their content to
music-streaming services such as Spotify's. Earlier this month, for
instance, Taylor Swift's entire catalog of music was yanked from
Spotify at the pop singer's request, amid a dispute over her latest
chart-topping album. The dust-up sparked a renewed debate over
whether artists and music-rights holders are getting their fair
share from the music-streaming business model.
Spotify pays labels and publishers between $0.006 and $0.0084 a
stream. They in turn pay their artists a percentage, which varies
depending on each artist's contract.
Write to Sven Grundberg at sven.grundberg@wsj.com
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