SoundCloud’s 2014 financials show increased losses, but the real test will be the launch of its streaming service

SoundCloud’s 2014 financials were filed with Companies House this week (as first reported by Music Ally), showing an increase in revenues to €17.4 million but an overall loss of €39.1 million. 

The company highlights that it will need to raise further funding in 2016, and whilst expressing confidence in being able to continue its “operational existence”, it acknowledges material uncertainties facing the business. 

Revenues have clearly grown since 2010, when they were just €1.37m, but losses have grown at a much higher pace (from €1.55m in 2010 to 2014’s €39.1m) which is likely to worry investors. However, neither the 2014 nor the 2015 numbers (to be released later this year) will be a fair assessment of SoundCloud’s earnings potential, since all hope now hangs on the upcoming subscription service. If successful, its earnings could quickly eclipse the company’s performance to date.

SoundCloud recently announced securing $35m in debt funding, with the option of extending that by another $70m. This may help the company get to the actual launch of the streaming service but not much beyond that - especially once licensing costs are taken into account. This means that VCs are still likely to have a big role to play in the future of the company, and their appetite to invest will likely be directly proportional to the reception of the streaming service offering.

SoundCloud only just settled a lawsuit from PRS for Music that had put its label licensing negotiations in jeopardy, and subsequently closed the long-coveted deal with Universal Music Group. So, things are looking up. However, higher revenues from a streaming service will need to be balanced with much higher costs, which means that SoundCloud will almost inevitably have a lot more cash before it can hope to become a profitable operation. 

(Andrea Leonelli)