November 5, 2018

Spotify Turns A Profit And Adds More Paying Subscribers

Spotify Profit on the Music 3.0 BlogThere’s good news for Spotify on a couple of fronts, but it may not be as cheery as it looks. Spotify reported that it has grown its paid subscriber base to 87 million, and actually made $56 million in Q3 of 2018. On the surface this looks great but underneath the numbers there’s a reality that might not bode well for the company in the future.

For one thing Spotify’s growth has slowed a lot. In the last 3 months the streaming platform saw an average new subscriber rate of 1.33 million per month, but the previous 3 month’s average was double that at 2.67 million per month. That could be scary for investors if the trend continues next quarter.

Spotify isn’t making a big deal out of turning a profit because it’s based on some financial engineering instead of revenue. According to Music Business Worldwide, much of the profit came as a result of a tax benefit that came from its ownership of around 9% in the Chinese company Tencent Music Entertainment, which filed to go public last month. The company also cut a lots of costs during the quarter as well, including money spent on R&D, sales and marketing, and administrative costs. In other words, good old fashioned cost-cutting and a lucky financial break turned the quarter into its first money maker, even though its operating loss was still around $7.8 million.

Then there’s the fact that the company’s stock price is down to around $139, the lowest since the company went public in April. Of course, all tech stocks have taken a beating lately.

Spotify is still king of the hill when it comes to music streaming, but it’s coming down to earth somewhat, especially in the United States where Apple Music is quickly catching up. Next year at this time we might have a streaming market that’s entirely upside down from the way we see it today.

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