Spotify sacrifices short-term profits to grow subscriber base by 27%

Music streaming giant, Spotify (NYSE:SPOT), announced that its subscriber base soared by 27% in the third quarter, up to a total of 144 million. Similarly, the company stated that its monthly active users bounced 29% year-on-year, up to 320 million.

According to research published by Comprar Acciones, Spotify had just (I know, just) 18 million subscribers in the first quarter of 2015. This doubled by Q2 2016, and then again by Q4 2017, and now doubling again, to the figure recorded in the quarter just gone by.

Spotify subscribers, Spotify data, Comprar Acciones graphic

Following the increase in the number of subscribers, the company’s subscription revenue hiked 15% year-on-year during Q3, up to €1.79 billion. Overall revenue rose by 14% in the same comparison, up to €1.98 billion, while ad revenue increased by 9%, year-on-year and 41% in a quarter-on-quarter basis, up to €185 million.

Despite the company’s seemingly impressive growth, tough, Spotify booked a €101 million loss during the period, swinging from a €241 million profit during Q3 2019. This downturn, the company said, was the result of discount plans being offered to increase its userbase – which saw revenue per user fall by 10%, down to €4.19.

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As stated by the Billboard report, music streaming sales accounted for 56% of all global music sales in 2019, with streaming revenue soaring 23%, while subscription revenue shot up by 24% and accounted for 40% of total label income.

At the topic of the music streaming tree, Spotify claims 35% of total music streaming market share, and along with Apple Music (19%) and Amazon Music (15%), the top three claim 67% of the market.

These trends are only expected to become further entrenched going forwards. While taking a hit to short-term profits, Spotify has positioned itself well for 2021 by bringing record numbers of users into its platform – many of whom for the first time. Speaking on the music streaming market as a whole, Comprar Acciones financial expert, Nica San Juan said:

“By the end of 2020, revenue in music streaming is expected to reach $16.4 billion according to Statista. That would mark a 15.0% increase YoY. The segment’s user base is expected to reach 595.8 million by the end of the year, marking a 15.1% YoY increase.”

“Revenue from music streaming is expected to grow at a 5.4% compound annual growth rate (CAGR) between 2020 and 2025, to reach $21.3 billion, and a total of 933.2 million users.”

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