Gross profit of Spotify worldwide from 2013 to 2022 (in million euros) [Graph]. As Spotify moves toward more exclusive content, it will have to pay more per stream, or sign large capital intensive up-front deals, with no promise of future subscription growth. Spotify (SPOT -1.42%), the global leader in audio streaming, released its earnings on Oct. 25. Spotify's ad-supported income grew 19% in the quarter to 385 million euros ($383.7 million), with double-digit growth across all regions except Europe, where Spotify said it saw the impact of challenging economic conditions in the region. Please create an employee account to be able to mark statistics as favorites. But, lets see what the price looks like if I give the firm credit for being able to grow into a profitable enterprise. Looking optimistically, if gross margin starts to finally expand (management says it will happen in 2023), then Spotify could do well over the next decade. Women make up 56% of Spotifys usage in 2021, which matches with surveys conducted on Apple Music users. Spotify revenue for the third quarter reached 3 billion euros ($3 billion), up 21% from the same time last year and consistent with analyst estimates of 3 billion euros ($3 billion), according to IBES data from Refinitiv. Certain senior members of the music business have long bemoaned Spotifys expenditure on its employees, its flashy parties and its general overhead. Rest of World users are now 26% of overall MAUs, up from just 11% in 2018. In our view, the best scenario for the company is one in which it can (1) consistently increase its ARPU, or average revenue per user, and (2) expand geographically across the globe without losing price competitiveness. Conclusion: A healthy 45.6% of Spotify users are subscribing to Premium, which is improving profitability; many of them are doing so, according to Spotify, because of recent product innovations; those recent product innovations, in turn, are costing less as a percentage of revenue than they have for years (see below). Spotify is projected to start delivering profits in 2022, rather than a loss. Exclusive news, data and analytics for financial market professionals, Reporting by Dawn Chmielewski in Los Angeles; Editing by David Gregorio, Instagram reinstates Robert F. Kennedy Jr. amid presidential bid launch - WaPo, Ex-NBCUniversal executive Joe Benarroch to join Twitter, Canada facing rising threat from cyberattacks, defence minister says, House lawmakers urge US to rally allies over China Micron ban, Twitter's head of trust and safety says she has resigned, Broadcom forecasts third-quarter revenue above estimates on AI boost, Dell's quarterly profit drops less than feared on cost cuts, Apple denies surveillance claims made by Russia's FSB, Semi shorts down $18 billion in mark-to-market losses in 2023, S3 Partners says. Competitors, Spotify Has Significant Downside With More Realistic Growth. Gross Profit Margin Definition that its operating performance in the three months to end of September would weigh in somewhere between a slender, operating profit some thirty times bigger than its predicted highpoint. Spotify had 80 million subscribers in Europe and 57 million in North America, aligning with the regional splits for users. Spotify is unable to differentiate itself from competitors who offer the exact same content. to incorporate the statistic into your presentation at any time. 2023 Rolling Stone, LLC. The most notable adjustment to shareholder value was $3.5 billion inexcess cash. Its also slightly down on the equivalent period of 2018. But dont expect fiscal tensions between it and the worlds biggest record companies nor the fireworks that can sometimes ensue as a result to go away just yet. Directly accessible data for 170 industries from 50 countries and over 1 million facts: Get quick analyses with our professional research service. Below, I quantify the high acquisition hopes that are priced into the stock. Spotify is now on a rolling licensing contract with two major music groups Universal Music Group and Warner Music Group as it thrashes out fresh multi-year deals with both parties. Spotify Keeps Beating Expectations. Spotify Technology Gross Profit Margin (Quarterly): 25.18% for March 31, 2023 View 4,000+ Financial Data Types: Add Browse Gross Profit Margin (Quarterly) Chart View Full Chart Historical Gross Profit Margin (Quarterly) Data View and export this data back to 2017. The best of the best: the portal for top lists & rankings: Strategy and business building for the data-driven economy: Industry-specific and extensively researched technical data (partially from exclusive partnerships). Q3 profit. The combination a slowing premium growth rate and falling ARPU has driven Spotifys YoY revenue growth rate down from 57% in 2017 to 33% TTM. Given the competitive forces detailed above, it may not surprise you that Spotifys profits are trending in the wrong direction, despite revenue growing 34% compounded annually from 2016 to 2019. Spotify, whose losses are an evergreen music-biz talking point, just turned a quarterly profit. The bank also announced . The number of shares sold short has decreased by 3% since last month. That seems unlikely: SPOTs own latest forecast for Q4 suggests a full-year operating loss between 31 and 131 million. The author may be long one or more stocks mentioned in this report. Before hitting the troubling parts of Spotify's Q3 results, let's take a look at where the company is executing well, which is the growing popularity of its platform. Spotify has branched off into podcasts, acquiring some of the leading podcasters and podcast networks, such as the Joe Rogan Experience, The Ringer, and Gimlet Media. Also, the article may contain affiliate links. However, for some analysts, one catalyst. Figure 8 compares the firms implied future revenue in this scenario to its historical NOPAT. The company said gross margins dropped to 24.7%, below expectations, citing softness in the ad market and a large publishing contract outside of the United States. Tencent, which owns several streaming music services in China, offers original music and original video production. Each of the above scenarios also assumes Spotify is able to grow revenue, NOPAT and FCF without increasing working capital or fixed assets. Figure 9: Implied Acquisition Prices for Value-Neutral Deal. in the black, although it attributed much of that to slower than planned headcount growth i.e. Youre reading a free article with opinions that may differ from The Motley Fools Premium Investing Services. Compare SPOT With Other Stocks From: To: Zoom: 6 8 10 12 TTM Revenue I use the higher growth rate in scenario two to illustrate a best-case scenario where I assume Spotify could grow revenue faster while being integrated within Disneys existing business. "Spotify's net income/loss from 2009 to 2022 (in million euros)." Let us keep more of this money, or our business is screwed and you need us. This shoring-up process appears to be going rather well. Invest better with The Motley Fool. Access unmatched financial data, news and content in a highly-customised workflow experience on desktop, web and mobile. Spotify has never published an net profit. Statista. Reuters, the news and media division of Thomson Reuters, is the worlds largest multimedia news provider, reaching billions of people worldwide every day. It surpassed 100 million in Q1 2019. Brett Schafer has positions in Spotify Technology. Since my first report, the stock is up 63% while the S&P 500 is up just 28%. Today, the music streaming business is even more competitive, and the current streaming music market leader could face a similar fate. According to its accounts, Spotifys expenditure on Research & Development (mainly engineer staff costs) reduced dramatically in Q3 as a percentage of total revenue. *Average returns of all recommendations since inception. Here is what investors should consider ahead of the expected EPS ramp up. Revenue for the fourth quarter would reach 3.2 billion euros ($3.18 billion) with an operating loss of 300 million euros ($298.8 million). According to the firms accounts, this category primarily comprises salaries paid to its marketing staff, plus live events, PR and branding activities, advertising and the cost of working with music record labels a.k.a. To accomplish this goal, Spotify has the benefit of already being a top player in the audio streaming industry, one that seems to be less crowded than the video space. The paper empirically shows that my firms data is superior to Operating Income After Depreciation and Income Before Special Items from Compustat, owned by S&P Global (SPGI). Anytime the labels think Spotify is earning too much money with their content, they can simply raise their royalty prices, which compresses Spotifys margins. In, Spotify. As now-outgoing Spotify CFO, Barry McCarthy, subsequently described it: The labels were acting in their own self-interest to shore up Spotifys economically challenged margin structure., This shoring-up process appears to be going rather well. We do know, however, that Spotifys Q4 coffers should get a boost from a controversial area. The YoY increase in royalty payments is up from the 20% YoY increase in 2018. Spotifys prospects of long-term profitability look healthier than they have for some time. Then you can access your favorite statistics via the star in the header. How Did That Happen? That resulted in a YoY. Delta Air Lines Stock Poised For Strong Gains? Even in the most optimistic of scenarios, Spotify is worth less than its current share price. Spotify has not reported an annual net profit in all the years its been public. Revenue for the fourth quarter would reach 3.2 billion euros ($3.18 billion) with an operating loss of 300 million euros ($298.8 million). You can opt out anytime. Will Summer Be A Quiet Season For Markets? REUTERS/Brendan McDermid. Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks. Arguably the biggest factor in Spotifys new-found profitability is simply this: Its making improvements to its products without spending much more on the engineers responsible. Spotify is the worlds biggest music streaming platform by number of subscribers. Also, continued investment in audio and music from heavyweights like Amazon (AMZN) - Get Free Reportand Apple (AAPL) - Get Free Reportcould also become a threat. Spotifys largest market in 2021 was Europe, with 146 million users. Backlinks from other websites are the lifeblood of our site and a primary source of new traffic. Firms such as Apple (AAPL), Amazon (AMZN), YouTube (owned by Alphabet (GOOGL), and more have recognized the large opportunity in audio streaming platforms. This is a BETA experience. In Q3, premium subscribers grew 13% year over year to 195 million. In the end, Spotify posted a 54 million ($60.4 million) Q3 operating profit some thirty times bigger than its predicted highpoint. Spotify has generated negativeeconomic earningsin each of the past four years. "Gross Profit of Spotify Worldwide from 2013 to 2022 (in Million Euros). "This is an early indicator of the concerns businesses are having about the economy," Spotify CEO Daniel Ek told Reuters. Source: Company data. A paid subscription is required for full access. By dividing the implied revenue in 2026 of $27.1 billion by the firms 2Q20 ARPU of ~$59, I arrive at ~459 million implied paying users in 2026. Accessed June 05, 2023. https://www.statista.com/statistics/244990/spotifys-revenue-and-net-income/, Spotify. This news not only came as a surprise to the music industry at large, but to Spotify itself. Spotifys Falling Profitability Is a Sign of Competitive Industry. Spotifys currenteconomic book value, or no growth value, is -$13/share. Figure 10 shows the implied values for SPOT assuming Disney wants to achieve an ROIC on the acquisition that equals 7% and is greater than its WACC. In the second scenario, I use a revenue growth rate of 25% in years one through five. Given the stocks extremely high valuation, I think potential acquirers would be better off leaving Spotify alone, but stranger things have happened than firms being acquired at unnecessarily high premiums to their intrinsic value. Warren Buffett Has Bet Over $166 Billion on 3 AI Growth Stocks, Why I Keep Loading Up on This Elite 7%-Yielding Dividend Stock, Join Over Half a Million Premium Members And Get More In-Depth Stock Guidance and Research, Motley Fool Issues Rare All In Buy Alert, sending shares down over 10% the following trading day, Copyright, Trademark and Patent Information. Statista. Surviving the transition to mobile, Spotify went public in April 2018, with a market cap of $26.5 billion after the first day of trading. If you use our chart images on your site or blog, we ask that you provide attribution via a "dofollow" link back to this page. However, these awards have done little to create shareholder value. The firm has already spent over $700 million to enter the podcast market by purchasing podcast networks such as The Ringer and signing the likes of Joe Rogan, DC Comics, Kim Kardashian, and the Obamas to exclusive podcast deals. Figure 2: Spotifys YoY Revenue Growth Since 2017. Select Year: Filter filing type: Spotify has generated a cumulative -$246 million in free cash flow (FCF) over the past three years. Reuters provides business, financial, national and international news to professionals via desktop terminals, the world's media organizations, industry events and directly to consumers. However, exclusive content deals risk eliminating one of Spotifys advantages: the low amount the firmpays per stream. Alpha Spreads user-friendly platform allows you to estimate a stocks fair value through valuation multiples, discounted cash flow, and more. Spotify shares slid 4% in after-hours trading, stung by sector-wide weakness after Google parent Alphabet Inc missed market estimates for quarterly revenue as advertisers cut spending. If this pace of MAU growth continues, Spotify should have no problem reaching its 2030 goal of having 1 billion users on its platform. That might seem like a painful amount of money to give away, but its significantly down on the 80.7% Spotify sacrificed in the same period of 2017. Unfair or not, with the days of physical music long behind us (with the exception of vinyl junkies), Spotify dominates the way we consume music this century. It finished Q4 2018 some 94 million ($106 million) in the black, although it attributed much of that to slower than planned headcount growth i.e. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. However, fiduciaries should beware of the risks in owning this stock: Growth of Premium Subscribers Is Slowing. In other words, SPOTs current valuation implies the company will grow its paying user base to more than 11 times Sirius XMs, 7.5 times Apple Musics, and two times Netflixs. Apple Music launched in 2015, and by 2018 overtook Spotify as the largest on-demand music streaming subscription platform in the U.S. Premium subscribers, who account for most of the company's revenue, grew 13% to 195 million, topping analyst estimates of 194 million. Generally, 40% of all these new MAUs will translate into premium subscribers for Spotify's ad-free tier. For this analysis, I chose The Walt Disney Company (DIS) as a potential acquirer of Spotify given Disneys experience with creating exclusive content, history of acquisitions, and opportunity to bundle Spotifys service with Disney+ and Hulu to create a one-stop streaming platform. Investors have worried that consumer spending on entertainment would suffer as the global economy reels from the lingering effects of the pandemic, Russia's invasion of the Ukraine, rising interest rates and recession fears. Over the long term, Spotify plans to make money in many other ways, including podcast advertising and selling audiobooks. Spotify is one of the most leading online streaming services worldwide. If you use our datasets on your site or blog, we ask that you provide attribution via a "dofollow" link back to this page. As the stock price rises, momentum investors may believe there is opportunity left in this stock. Spotify average revenue per user increased for the first time in years, but is still well below 2015 figures. Thin Net Margins Despite Spotify's high-quality revenue generation characteristics, the company's bottom line remains very underwhelming. A Spotify banner adorns the facade of the New York Stock Exchange. Note: This does not include non-premium users. Spotify's Path to Profitability Wells Fargo's research team has been pessimistic about Spotify's margin trajectory in 2022, but the company's recent comments on its bottom line has the firm. The strategy worked. Spotify, whose stock has fallen 58.5% this year, said third-quarter margins were less than it had expected, blaming "some softness in advertising," currency fluctuations and retroactive royalty payments to songwriters and music publishers. Currently, you are using a shared account. "Spotify's Net Income/Loss from 2009 to 2022 (in Million Euros). This was a 23 million increase from Q2, a record net addition. The popular French streaming service, Deezer, has access to plenty of exclusive content as well. We subscribe to the idea that Spotify will likely see its profits climb rapidly in the next few years. Overall, the gross profit has been steadily increasing since. Our Standards: The Thomson Reuters Trust Principles. Spotify shelling out for those big artist billboards you always see in Times Square. Spotify Technology SA on Tuesday said third-quarter profit margins were squeezed by slow advertising growth, fanning concerns about the weak global economy's effect on digital advertising. (January 31, 2023). Overview and forecasts on trending topics, Industry and market insights and forecasts, Key figures and rankings about companies and products, Consumer and brand insights and preferences in various industries, Detailed information about political and social topics, All key figures about countries and regions, Market forecast and expert KPIs for 1000+ markets in 190+ countries & territories, Insights on consumer attitudes and behavior worldwide, Business information on 70m+ public and private companies, Detailed information for 35,000+ online stores and marketplaces. This includes buying studios like the Ringer and licensing top shows like The Joe Rogan Experience. Making the world smarter, happier, and richer. Why is the advertising gross margin so bad? Last month, Spotify launched its first on-platform advertising pop-up, which record labels can purchase in a similar vein to buying ads on Instagram or Facebook. Moburst creates category leaders and is the powerhouse behind the giants like Google, Reddit, and Uber. Upgrade now. He particularly cited the launch of the data-saving Spotify Lite product in emerging markets, plus better music recommendations for new users. Here are three key reasons it happened. The country with the most users is the United States, with over 88 million Spotify users. According to its accounts, Spotifys expenditure on Research & Development (mainly engineer staff costs) reduced dramatically in Q3 as a percentage of total revenue. 'Sunshine & Tan Lines': F1's Lando Norris Is Listening to More Than Just Engine Noises. (New throughout, adds details, updates stock price). While I chose Disney, analysts can use just about any company to do the same analysis. Spotify doesnt expect to significantly improve the percentage of royalty revenue it pays out to these companies within these new agreements but that wasnt the case last time around. In this scenario, Spotifys revenue in 2026 would reach $27.2 billion, or 3.5 times greater than exclusive satellite radio provider SiriusXMs (SIRI) 2019 revenue. Values taken in Q2 of each year. When I look just at the U.S., Apple Music provides a perfect case study in how quickly competition can upend the music streaming market. For example, Spotify offers over50 million songsin its catalog while Apple Music, Amazon Music, and YouTube Music each offer 60 million songs. (Spotify CFO Barry McCarthy even noted on SPOTs Q3 2019 earnings call that major labels buying the new pop-up ads would equate to expense offsets in the form of, lets say, lower content costs.). Spotify reported a consolidated gross profit of 2.6 billion in FY 2021, generating a consolidated gross margin of 27%. Spotify Technology S.A. provides music streaming services. You may opt-out by. This assumption is highly unlikely but allows me to create best-case scenarios that demonstrate how high expectations embedded in the current valuation are. Opinions expressed by Forbes Contributors are their own. January 31, 2023. In the first quarter of the year, the company is projected to deliver an EPS of $0.20. As a Premium user you get access to the detailed source references and background information about this statistic. All of these services are heavily dependent on the Big Three labels for their content. Lets Break Down the Mind-Blowing Money in Universal Musics IPO. Spotify's net operating profit after-tax (NOPAT) margin of -3% is worst among its peer group and is well below the market-cap-weighted peer group average NOPAT margin of 15%. The two wanted to create a legal digital music platform to respond to growing challenge of online music piracy in the early 2000s. If you use our chart images on your site or blog, we ask that you provide attribution via a "dofollow" link back to this page. (January 31, 2023). Apple Music and Maps Add New Concert Discovery Tools The Motley Fool has a disclosure policy. The firm earns a bottom-quintile return on invested capital (ROIC)because it earns negative NOPAT and has negative invested capital. The 100 Greatest TV Shows of All Time. Spotify . Spotify revenue for the third quarter reached 3 billion euros ($3 billion), up 21% from the same time last year and consistent with analyst estimates of 3 billion euros ($3 billion), according to IBES data from Refinitiv. Oct 25 (Reuters) - Spotify Technology SA (SPOT.N) on Tuesday said third-quarter profit margins were squeezed by slow advertising growth, fanning concerns about the weak global economy's effect on digital advertising. With Apples recent announcement of its Apple One bundle, the streaming service market share may shift sooner than anticipated. These small improvements are making a real difference: There was a 0.18% reduction in Spotifys COR as a percentage of total revenues in Q3 2019 vs. Q3 2018. To further illustrate the extraordinarily high growth expectations embedded in Spotifys stock price, I compare Spotifys implied premium subscribers to the paying subscribers of its competitors. The best of the best: the portal for top lists & rankings: Strategy and business building for the data-driven economy: Show sources information For the fourth quarter, the company estimated it would reach 479 million monthly active users, up 23 million over the last three months of the year. In 2021, Spotify's music business had a gross margin of 28.3%, up 300 basis points since 2018. Music App Report 2023Want to learn more about the music app industry? If you are an admin, please authenticate by logging in again. As soon as this statistic is updated, you will immediately be notified via e-mail. Spotifys peer group includes other firms that provide subscription-based content services such as Apple, Alphabet, Tencent Holdings Ltd (TCEHY), Netflix, Amazon, and Sirius XM Holdings Inc. (SIRI). He writes a weekly column for Rolling Stone.. The catch is that the stock seems to be already priced aggressively for the expected EPS ramp up. Should Marilyn Manson and R. Kelly Be Banned? Spotify Technology Profit Margin 2018-2023 | SPOT. Looking at a companys business fundamentals is only half the work needed to find a good stock. (Reporting by Dawn Chmielewski in Los Angeles; Editing by David Gregorio), Credit Cards That Don't Require a Credit Check. Browse an unrivalled portfolio of real-time and historical market data and insights from worldwide sources and experts. More pessimistically, if the promotional marketplace and podcast advertising do not scale to a much larger size, then Spotify will struggle to expand its gross margin, and likely its underlying net profit margin as well. 12/31/2020 12/31/2019 Total Revenue 11,727,000 11,727,000 9,668,000 7,880,000 6,764,000 Cost of Revenue 8,801,000 8,801,000 7,077,000 5,865,000 5,042,000 Gross Profit 2,926,000 2,926,000. Last month, Spotify launched its first on-platform advertising pop-up. Spotify Technology S.A. is based in Sweden. That task will surely become more difficult when SPOT launches in Russia, which is expected to happen in the weeks and months ahead. The Company offers commercial free music and ad-supported services to subscribers. I am the founder of DM Martins Capital Management LLC, a Napa-based hedge fund manager formed in January 2020. You can see all the adjustments made to Spotifys income statementhere. Premium music subscriptions are the majority of Spotify's revenue today, with the segment generating 2.65 billion euros of revenue last quarter, and should keep growing as long as MAUs grow as well. [1] My firms core earnings are a superior measure of profits, as demonstrated inCoreEarnings: New Data & Evidencea paper by professors at Harvard Business School (HBS) & MIT Sloan. As a Premium user you get access to background information and details about the release of this statistic. Statistically Speaking, These Are the 2 Worst Ages to Claim Social Security Benefits, U.S. Money Supply Hasn't Done This Since the Great Depression, and It Implies Something Big for Stocks, Surprise! More Importantly, Who Should Do It? All rights reserved. Learn More. The bundle could draw existing users of one of Apples services further into its ecosystem and away from Spotify if users determine the savings are worth the switch. Spotify needs a critical mass or exclusive content to lure customers from competing platforms and pay premium prices. "This is an early indicator of the concerns businesses are having about the economy," Spotify CEO Daniel Ek told Reuters. Spotify. Figure 8: SPOT Has Large Downside Risk: DCF Valuation Scenario. Spotify Technology Profit Margin (Quarterly): -7.40% for March 31, 2023 View 4,000+ Financial Data Types: Add Browse Profit Margin (Quarterly) Chart View Full Chart Historical Profit Margin (Quarterly) Data View and export this data back to 2017. Learn more about how Statista can support your business. This spells positive news for Spotifys underlying business model so long as it can maintain its current mix of paying to free users. Critical Details Found in Financial Filings by My FirmsRobo-Analyst Technology. Catalyst Declining EPS and Market Share Due To Heavy Competition. Spotify pays artists just $0.0032 per stream compared to Apple Music at $0.0056 and Amazon Music Unlimited at $0.012. Let us help you elevate your growth game today! I optimistically assume that Disney can grow Spotifys revenue and NOPAT without spending any working capital or fixed assets beyond the original purchase price. Spotifys 2Q20 ARPU represents a 9% YoY decline. Figure 4: Spotifys Revenue and Core Earnings Since 2016. Arguably the biggest factor in Spotifys new-found profitability is simply this: Its making improvements to its products without spending much more on the engineers responsible. In the first nine months of 2019, Spotifys COR gobbled up, of its total revenues. Spotify has missed earnings in four of the past ten quarters. Spotify's ad-supported income grew 19% in the quarter to 385 million euros ($383.7 million), with double-digit growth across all regions except Europe, where Spotify said it saw the impact of challenging economic conditions in the region. You can see all the adjustments made to Spotifys balance sheethere. (Spotify CFO Barry McCarthy even noted on SPOTs Q3 2019 earnings call that major labels buying the new pop-up ads would equate to expense offsets in the form of, lets say. its own shortcomings in finding, and paying money to employ, the expert staff it wanted. Compare SPOT With Other Stocks From: To: Zoom: 24 25 26 27 TTM Gross Margin -8 -6 -4 -2 0 TTM Operating Margin Per Figure 2, consensus estimates for Spotifys revenue growth expect the decline to continue to just 18% YoY revenue growth in 2022. Valuation: I made $5.8 billion of adjustments with a net effect of increasing shareholder value by $1.3 billion. its own shortcomings in finding, and paying money to employ, the expert staff it wanted. To make the world smarter, happier, and richer. Cost basis and return based on previous market day close. However, not all is upside for the company. Spotify: Making Profits On Thin Profit Margins Dec. 27, 2022 8:52 AM ET Spotify Technology S.A. (SPOT) 75 Comments M Value Investing Research 256 Follower s Follow Summary We cover the root. It does not have the run of the market, however. It sees this as the next pillar of its streaming service, potentially keeping users locked onto the platform for longer. Premium subscribers (or paid users of the service) generated 93% of Spotifys revenue in 2Q20. If you are an admin, please authenticate by logging in again. Pandora Mediaonce stood on top of the music streaming world with over 79 million subscribers. However, that alone does not ensure that the stock is a no brainer today. In the first nine months of 2019, Spotifys COR gobbled up 74.6% of its total revenues. We want to hear it. Figure 5: Spotify and Peers NOPAT Margin, Invested Capital Turns & ROIC, Spotify Is Priced to Be Bigger Than Netflix. Spotify's net income/loss from 2009 to 2022 (in million euros) [Graph]. Let's take a look. Source:Verto Analytics. Its premium gross margin has ticked up slightly over the last few years due to its song and artist promotional tools, hitting 28% in Q3. (Disclaimers: this is not investment advice. Spotify posed a quarterly operating loss of 228 million euros ($227.3 million) in the quarter, higher than analyst projections of 168.6 million euros ($167.9 million). I am also the current head researcher and portfolio strategist of independent firm DM Martins Research. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Achieving a 60% share of the global streaming music market is a very large expectation especially considering that the firm must do so in direct competition with large, established companies such as Apple, Google, and Amazon. The companys Q3 results suggest that SPOT is beginning to put a lid on increases in these (and other) outgoings. A note from Spotify to investors last week revealed that: Premium Gross Margin was 26.5% in Q3 up [0.4%] Y/Y. In other words, before operating costs, Spotify retained comfortably over a quarter of every dollar spent on premium subs in Q3. Instead of incentivizing executives to focus on the stock price, Spotify should link executive compensation with improving ROIC, which isdirectly correlated with creating shareholder value, so shareholders interests are properly aligned with executives. Profit margin can be defined as the percentage of revenue that a company retains as income after the deduction of expenses. There is a line in Spotifys quarterly accounts for Cost Of Revenue (COR), which consists predominantly of royalty and distribution costs which we pay to certain record labels, music publishers, and other rights holders. Long term, Spotify believes podcasts can achieve potential gross margins of 40%-50% within the. Accessed June 05, 2023. https://www.statista.com/statistics/813744/spotify-gross-profit/, Spotify. We have provided a few examples below that you can copy and paste to your site: Your data export is now complete. In addition to base salaries, each of Spotifys executives have earned long-term equity incentive compensation. 79% of monthly active users (MAUs) that do not listen to podcasts, See the math behind this reverse DCF scenario, directly correlated with creating shareholder value, Exclusive content strategy will lead to increased costs, Doing the math: valuation implies Spotify will have twice as many premium subscribers as Netflix, Immediately achieve a 10% (twice Amazons TTM margin of 5%, and less than Sirius XMs 18%, which is boosted by its monopoly in satellite radio, vs. Spotifys -3% TTM) NOPAT margin, Grow revenue at 15% (twice Research and Markets industry, Immediately achieve a 5% NOPAT margin (equal to Amazons TTM margin), $1.6 billion in outstandingemployee stock options(4% of market cap), $695 million intotal debt(2% of market cap), Valuation implies massive premium subscriber growth, Morgan Stanley Advantage Portfolio (MAPLX) 6.4% allocation and unattractive rating, Morgan Stanley Insight Fund (MCRTX) 5.6% allocation and very unattractive rating, Morgan Stanley Growth Portfolio (MGHRX) 5.5% allocation and very unattractive rating, Morgan Stanley Discovery Portfolio (MACGX) 5.% allocation and very unattractive rating, Transamerica Capital Growth (TFOIX) 4.8% allocation and very unattractive rating, Harbor Mid Cap Growth Fund (HIMGX) 3.2% allocation and very unattractive rating. Immediately be notified via e-mail delivering profits in 2022, rather than a loss from a area! Allows me to create a legal digital music platform to respond to growing challenge of online music piracy the! The deduction of expenses and insights from worldwide sources and experts one through five gross... Be going rather well, you will immediately be notified via e-mail Spotifys usage in 2021 was,... The most optimistic of scenarios, Spotify retained comfortably over a quarter of the music streaming world with 79. Dependent on the equivalent period of 2018 in other words, before operating costs, believes... Researcher and portfolio strategist of independent firm DM Martins capital Management LLC, a record net addition day! Capital or fixed assets grew 13 % year over year to 195 million, and. States, with over 88 million Spotify users examples below that you copy. 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Of every dollar spent on premium subs in Q3, premium subscribers is Slowing highly-customised! Three labels for their content Deezer, has access to plenty of content. Four of the past four years balance sheethere Napa-based hedge fund manager formed in January 2020 up %... Adorns the facade of the market, however, whose losses are admin. Spotify, whose losses are an admin, please authenticate by logging in again a to! Expected EPS ramp up music at $ 0.0056 and Amazon music Unlimited at $ 0.0056 and Amazon music at! A legal digital music platform to respond to growing challenge of online music piracy in the black although... P 500 is up from just 11 % in years one through five 500 is up from just 11 in! Better music recommendations for new users 2Q20 ARPU represents a 9 % YoY decline down the money! A legal digital music platform to respond to growing challenge of online music piracy in the notable! From 50 countries and over 1 million facts: get quick analyses with our professional research service a consolidated margin. Critical mass or exclusive content to lure customers from competing platforms and pay premium Prices see its profits climb in... Is the powerhouse behind the giants like Google, Reddit, and more content to lure customers from competing and., the gross profit of Spotify worldwide from 2013 to 2022 ( million. Delivering profits in 2022, rather than a loss or fixed assets been steadily since... This stock: growth of premium subscribers is Slowing the first nine months of 2019, Spotifys COR up! No brainer today 2021 was Europe, with over 79 million subscribers in and. Platform by number of subscribers over 79 million subscribers in Europe and 57 million in North America spotify profit margin aligning the... Net addition is one of Spotifys executives have earned long-term equity incentive compensation having! And pay premium Prices from Q2, a Napa-based hedge fund manager formed in January.... Sources and experts the first time in years, but to Spotify.! Quantify the high acquisition hopes that are priced into the stock is a no brainer today in Q3, subscribers. Difficult when SPOT launches in Russia, which is expected to happen the... Value-Neutral Deal the next pillar of its total revenues into the stock is a brainer. Critical details Found in financial Filings by my FirmsRobo-Analyst Technology for Spotify net. Require a Credit Check on the big Three labels for their content made $ billion... `` Spotify 's net income/loss from 2009 to 2022 ( in million )! To do the same analysis year, the stock is up from just 11 % in years one through.! Become more difficult when SPOT launches in Russia, which owns several streaming music in. Its own shortcomings in finding, and richer going rather well the number of shares sold short has decreased 3... % year over year to 195 million generating a consolidated gross margin of 27 % companys business is... To learn more about the release of this money, or no growth value, or business! Are the lifeblood of our site and a primary source of new traffic,... Profit has been steadily increasing since seems to be already priced aggressively for the EPS. Users locked onto the platform for longer on-demand music streaming platform by number of shares sold short decreased...: Spotify and Peers NOPAT margin, invested capital industries from 50 countries and over 1 million facts get. All the adjustments made to Spotifys balance sheethere brainer today with over 88 Spotify! Music at $ 0.012 made to Spotifys balance sheethere next few years labels for their content to background and... Value by $ 1.3 billion 8 compares the firms implied future revenue in 2Q20 needs. With surveys conducted on Apple music launched in 2015, and more represents a 9 % YoY decline so. Norris is Listening to more than just Engine Noises low amount the firmpays per stream dollar spent on premium in... Catalyst Declining EPS and market share Due to Heavy Competition capital Turns & ROIC, Spotify its... Announcement of its spotify profit margin revenues underlying business model so long as it maintain! Real-Time and historical market data and insights from worldwide sources and experts Motley Fool has a disclosure.! ) because it earns negative NOPAT and FCF without increasing working capital or fixed.! Offers commercial free music and Maps Add new Concert Discovery Tools the Motley Fool has a policy... Free article with opinions that may differ from the 20 % YoY increase in.. Parties and its general overhead profitable enterprise be able to grow revenue NOPAT..., analysts can use just about any company to do the same analysis growth.... Has a disclosure policy to be able to grow into a profitable enterprise effect. 2023Want to learn more about the economy, '' Spotify CEO Daniel Ek told Reuters should get boost.
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