When Spotify posts third-quarter results tomorrow (Oct. 24), analysts will be looking to see how the world’s largest music streaming service is future-proofing its business.
The 15-year-old company will post an uptick in revenue, but it won’t stop bleeding—observers expect the giant to keep losing money. Despite cutting management staff and hiking prices in the US, Spotify has failed to turn a profit. Last quarter, to explain its burn rate, the Swedish firm cited the shutdown of podcast shows, excess real estate spending, and severance for laid-off employees as part of a corporate restructuring it began at the start of 2023.
Meanwhile, competition from deep-pocketed tech giants like Apple, Amazon, and Alphabet (parent of YouTube Music) is only growing.
With Spotify’s Q3 results, “a valuation reality check could be on the cards—to the downside—as the company’s focus shifts to ad revenue after years of failed attempts to break through to profitability with its subscription business,” predicts Dilantha De Silva, a former buy-side analyst who runs the investment research group Beat Billions.
Spotify’s business, by the digits
19.4%: Spotify’s expected year-over-year revenue increase for Q3, to $3.64 billion
$0.21: Quarterly loss per share expected in Spotify’s Oct. 24 earnings report. The company has never posted a profit. Last year, it reported a net revenue loss of €430 million ($461 million)—10 times higher than in 2021—mostly due to an increase in operating expenses
200: Podcast employees Spotify laid off in June, equal to 6% of its workforce
200 million: Share of the company’s nearly half a billion users worldwide who pay for the service rather than use its ad-supported version
75%: Share of Spotify’s music revenues that directly go back to rights holders, according to Gustav Gyllenhammar, VP of markets and subscriber growth
$4,000: Spotify’s payout rate for recordings per million streams. That’s less than half a cent per stream. Because the money makes its way through a record company to an artist, “hundreds of millions of streams may be needed for a musician to net anything substantial,” the New York Times said
Charted: Spotify is the undisputed music streaming market leader
Quotable: Apple and Google’s dominance would trample a Spotify today
“Apple is both the architect of the iOS ‘ecosystem’ and its largest inhabitant. The company charges an excessive 30 per cent tax and imposes prohibitive rules on developers, many of whom helped build iOS into what it is today....The present mobile environment is a far cry from the more open and level playing-field that existed when I started building companies. It also makes me wonder whether launching a venture like Spotify would even be feasible today. My guess is no.”
One more thing: Spotify looks beyond music streaming
Late last year, Spotify was already boasting of how its platform boosted merchandise sales for artists. Its data showed when new music drops, merch sales spike. With hopes of capitalizing on that frenzy, Spotify launched a dedicated Merch Hub in its app on Oct. 16.
“Instead of having to browse artist by artist, this update makes it easier than ever to access all artist merch in one place,” the company wrote in its announcement. “From the hub, you can browse, click on available items to learn more, and then purchase through the artist’s Spotify store.”
This could give artists who are fed up with low royalties another way to earn money. It’s a win for the company, too. If it becomes a mainstay beyond music streaming—in touring, merch, and the larger fandom play—Spotify may be able to put itself in a better financial position.