The last relevant data was known when it presented the results for the third quarter of this year, which showed a sufficiently consolidated situation to achieve its best historical performance. The figures showed solid growth, exceeding expectations on several key metrics and achieving record levels of profitability.
If the trend continues, 2024 is on track to become the first year that Spotify would be profitable since its launch 16 years ago, with profits of around US$1.5 billion.
This result not only represents a milestone for the company. It is also important for its CEO, Daniel Ek, whose shareholding It is now valued at US$14,240 millionalmost triple what it was worth a year ago.
Spotify reached 640 million monthly active users this year
In nine months of 2024, Spotify reached 640 million Monthly Active Users (MAUs)a figure that represents an increase of 11% year-on-year and 2% compared to the previous quarter. In addition, it exceeded market expectations by more than 1 million users.
The premium subscribers increased to 252 millionalso one million above forecasts, representing a year-on-year increase of 12%.
In 2015 only one in four users paid a premium subscription. However, currently the relationship It’s almost one to oneaccording to the latest market estimates.
This growth in premium subscribers is attributed to successful promotional campaigns and the good performance of user retention and attraction strategies in all regions, especially Europe and Latin America.
Although Apple and Amazon music services have seen their number of accounts increase in recent years, they fail to reach Spotify’s numbers. And, like its competitors, the Swedish multimedia company has not stopped growing.
A key aspect of their strategy was reconfiguring its geographic expansion: Since 2020, the share of users in Europe decreased from 34% to 27%, while emerging markets in Asia, Africa and Latin America have grown from 19% to 33%.
Analysts consider that this demographic change has two advantages: diversifies the user base and at the same time creates new opportunities to adapt services and content to local audiences.
The company reported that in the third quarter of this year had revenues of US$4,209 milliona growth of 19% year-on-year. Excluding the impact of exchange rate variations, revenue increased 21% year-on-year.
Premium subscription revenue grew 21% year-on-year, driven by both an increase in the number of subscribers and an increase in average revenue per user (ARPU) of 9%.
Advertising revenue grew on the Swedish online music platform
The company also registered 6% growth in advertising revenuedriven mainly by the transformation of its advertising model, which through its service Spotify Ad Exchange evolved from brand advertising to a performance ratio-based approach.
This shift is driving steady growth in advertising revenue, complementing its core subscription business.
Thus, the operating income for the third quarter also reached a historical maximum of US$480 millionwith an operating margin of 11.4%, favored by a reduction in personnel and marketing costs.
This improvement in income is explained by Rate increases on paid subscriptions and advertisingas well as the growth in music, audiobooks and podcasts.
The basic problem for Spotify in all these years was that copyright payments to its owners (who are not always the same artists), together with its fixed personnel, infrastructure and marketing expenses, They consumed the income obtained from the sale of premium season tickets.
But that began to reverse drastically. In addition to the staff cuts it applied in recent years, it made a strong commitment to the incorporation of audiobooks and podcasts.
Both products They have much cheaper royalties than music, so if paid users use Spotify to listen to podcasts and not just music, the revenue would be the same, but the royalty expenses would be lower.
The purchases of platforms such as Gimlet Media and Anchor were at the time two clear indicators of the course that the Swedish company’s strategy was taking to improve its operational results through podcasting.
They also joined over 200,000 audiobook titles in the premium service it offers in several European countries, as part of the expansion and diversification strategy of content with lower cost options for the company.
Daniel Ek himself calculated that the launch of audiobooks as part of the standard offer is increasing the time of use of the platform in “five additional hours per user”.
According to the founder’s view, this diversification strengthens the platform and positions it as a comprehensive solution for entertainment and education.
Adding services to expand streaming customization
In addition, Spotify recently launched some innovations that aim to expand the interaction options and personalization of services for users.
Among the new features, the expansion of its Artificial Intelligence DJ for Spanish-speaking users in 18 markets and the launch of the comments functionality on podcasts, allowing greater interaction.
Additionally, the music video service has been launched in beta in 85 additional markets, significantly expanding access to visual content.
Looking ahead to the end of 2024, the company expects to continue its growth trajectory. It plans to reach 665 million Monthly Active Users and 260 million premium subscribers by the fourth quarter of this year.
In financial terms, total revenue is anticipated to reach US$4,326 million, with a gross margin of 31.8% and operating income of US$508 million.
Spotify’s main source of income comes from the subscription paid by premium users and from advertising that the company sells and includes in the service it offers to free users.
The number of reproductions of the total songs in your catalog is divided by the amount of money deposited and thus a value per reproduction is generated. That amount, which is around 0.005 cents per reproductionis what Spotify pays to each owner of the rights to the songs, which in many cases are usually some large record companies and not always the creators of the music.
Spotify’s business figures, beyond the delay in being able to show profits to the world, show that the music streaming service has become the goose that lays the golden eggs within the record market.
Only in 2023, streaming will benefit the music industry about US$19.5 billiona figure that represented an increase of more than US$1.5 billion compared to 2022. In addition, accounted for 67.3% of income generated by the industry worldwide.
Source: Ambito
I am an author and journalist who has worked in the entertainment industry for over a decade. I currently work as a news editor at a major news website, and my focus is on covering the latest trends in entertainment. I also write occasional pieces for other outlets, and have authored two books about the entertainment industry.
