Spotify Losses Growing

Spotify posted losses of nearly $200m for the year 2014, up threefold on the previous year's results. Despite growing both paid subscribers and its free tier the company doesn't seem to be able to make the numbers add up.

Unsurprisingly, the services detractors are busy crowing.

A closer look at the the numbers gives something of a lie to that wholly negative picture.

Firstly, in terms of revenue generated, the company saw 45% growth year on year, hitting $1.3bn. At the same time the service paid out $1bn to artists and publishers. (In December 2013 Daniel Ek, CEO, noted that $1bn had been paid out since the service had started, a number that had risen to $2bn when when he reported in 2014). That leaves around $300m in the pot for development costs, advertising and the other costs of doing business.

For a $1bn business that is growing its revenues at a good rate, these losses aren't a warning flag. The company characterised them as caused by product development, international expansion and increased personnel, each of which will have a bottom line boosting pay-off in the near future.

For now Spotify is doing fine but it will face its biggest challenge very soon when Apple starts stomping on its market. Given the performance of incumbent market leaders in areas where Apple has arrived to gatecrash the party things don't look so good. In Spotify's favour a good product, wide reach and a strong team. 

Against them: history...

Interesting times ahead in Stockholm.


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