Spotify 2013 financials: growth, losses and ad-supported content

Spotify has revealed its 2013 financials in a filing published in Luxemburg, and the picture that emerges is that of a company experiencing rapid growth but also a number of challenges.

First let’s look at the revenues: the company made €746.9m which was just over a billion dollars taking into account the exchange rate at the end of 2013 (in today’s money, just less than a billion).

This represents a 73.6% increase from its 2012 earnings, which is a spectacular increase. Operating losses though also rose 16.4%, to €93.1m. The company’s critics will point at these numbers to say that Spotify is sinking, that if its losses continue to grow as its revenues grow (even if losses are growing at a much slower pace) it will never be able to make money.

That’s when you look at the marketing spend and the R&D spend of the company, which together amount to €182m, more than double the company’s losses. This goes to reinforce Spotify’s line which is that expanding internationally is an expensive business, and that once the company is able to cut back on those expenses it will start making some profits.

Another interesting nugget of information contained in the report is the purchase price of music data company The Echo Nest in March 2014, which was €55 million. The company’s investors had reportedly put $26 million into the company so this was a decent exit for them but nothing to shout home about, given that initial reports had pegged the purchase price at around $100m.

The biggest challenge for Spotify, which in a sense supports Swift’s recent arguments around ad-supported free services, is the fact that its advertising business has failed to scale with its subscription business. In 2013, subscribers brought in €678.7m from subscriptions and just a tenth of that, €68.2m from advertising to customers on the ad-supported plan. This means that the bulk of its revenue came from just 20% of its users.

Those in Swift’s camp will argue that this is clear proof that ad-supported is not a feasible long-term solution for the industry. At the same time it does seem like ad-supported music is what allowed Spotify to scale to where it is today and to get to 12.5 million subscribers as recently reported.

(Andrea Leonelli)