February 9, 2021

Spotify Makes A Lot Of Money And Loses A Lot At The Same Time

Spotify loses money image

For those that think that streaming networks are rolling around in cash, that may be true, but the old adage “It’s not how much you make but what you keep,” still applies. According to its latest Q4 filing, Spotify collected $9.5 billion in revenue last year, but still keeps losing a lot of money.

The good news is that its paid subscriber base is up to 155 million, which is 11 million more than the last quarter alone. The bad news is that the company is losing about $2.2 million every day!

How is this happening? For one thing, streaming is business where most of the revenue is going right back to the rights holders, but the company also spent about $1 billion on marketing last year

Understand that Spotify is now in the world of keeping Wall Street and its investors happy, rather than customers or artists. The company’s share price has about tripled in the last year to about $318 (it was as high as $353 just a month ago) and that’s what investors are looking at.

What Wall Street really cares about is growth. As long as the revenue gets larger, loses won’t mean much. As soon as the growth stops, then it will be a train wreck unless the company can come up with a product with higher margins than licensed music. That’s why Spotify is so big on podcasting – no licensing fees, so big profits.

As long as streaming is the main avenue of music consumption, and as long as Spotify can stay on top of the hill, everything is good. If another way to consume music comes along (one will eventually – it always does), then things might get dicey for a company that can’t manage to make a profit.

If another streaming service should catch fire (like TikTok, although we’re talking apples and oranges since the consumption of mostly about video), then once again, Spotify will have a problem. Until then, Spotify reigns supreme as long as Wall Street is happy.


Crash Course image
Spread the word!