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Abu Dhabi, UAEThursday 21 February 2019

Spotify surprises by posting first profit

Update: Fourth-quarter operating profit of €94m compared with a mean forecast for a loss of €16m in a Reuters poll of analysts

Music streaming app Spotify has increased the number of paid up subscribers. Reuters
Music streaming app Spotify has increased the number of paid up subscribers. Reuters

Spotify, the world's most popular paid music streaming service, reported an unexpected fourth-quarter operating profit on Wednesday but its sales growth was well below expectations and it said it sees a loss of €200 million (Dh836.2m) to €360m in 2019.

Spotify posted fourth-quarter operating profit of €94m compared with a mean forecast for a loss of €16m in a Reuters poll of analysts and a year-ago loss of €87m. In November, The National reported the streaming service's launch in the UAE and across the wider Middle East and North Africa. Users in the Emirates, Saudi Arabia, Morocco, Egypt, Algeria, Tunisia, Lebanon, Jordan, Kuwait, Oman, Qatar, Bahrain and Palestine can now access the service free of charge; or through premium membership of Dh19.99 per month, which allows music streaming to be uninterrupted by commercials, in addition to downloading songs that can be heard offline.

On Wednesday, the company, which has said it prioritises growth over profitability, saw sales rise by 30 per cent in the fourth quarter, in line with the 31 per cent seen by analysts.

Average revenue per user (Arpu) fell 7 per cent in the quarter, Reuters reported, as the percentage of cheaper subscriptions rose and as growth in relatively lower Arpu markets outpaced areas with higher Arpu.

Investors have been concerned by Spotify's slowing rate of revenue growth. Sales grew 29 per cent in 2018, down from 39 per cent growth in 2017 and 52 percent in 2016.

The service has reached 96 million paying subscribers since its launch in Sweden in 2008. That compares with around 50 million paying subscribers for its closest rival Apple Inc's Apple Music, which launched in 2015.

Spotify's shares are down by some 6 per cent since the listing in April last year on the New York Stock Exchange, weighed down by a global tech sell-off at the end of the year.

Separately, Spotify acquired podcasting companies Gimlet Media and Anchor FM, a declaration that their speciality is the next big area of growth for the company.

Spotify didn’t disclose the prices it paid for the companies, according to Bloomberg, although previous reports said it would be paying more than $200m for Gimlet. That alone would be the biggest acquisition in Spotify’s history.

The Swedish company has been investing in podcasting for a few years now, funding exclusive shows from comedian Amy Schumer and rapper Joe Budden. But the deals for Gimlet, a producer of podcasts, and Anchor, a services company, signal the medium has progressed from a hobby to a key focus for Spotify.

“Spotify is already one of the world’s most-used apps, but we see an opportunity apart from where we sit today,” chief executive Daniel Ek wrote in a letter. “This opportunity starts with the next phase of growth in audio - podcasting.”

Podcasting allows Spotify to increase the amount of time its users spend on the app, and reduce its payments to music companies. It also opens up another front of competition with Apple, the market leader in podcasting. Apple Music is the second-most-popular paid music service, after Spotify.

Updated: February 6, 2019 05:26 PM

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