Record profits? Spotify likes the sound of that
Read time: 4m 16s
What happened?
The music streaming giant Spotify has revealed record profits of over 1bn euros (£860mn). This announcement comes after a year of laying off staff and cutting costs at the company.
The Swedish based company has been trying to grow its user base for many years, offering listeners and subscribers access to audiobooks and podcasts.
Even though its profit is good news, the company’s quarterly gross profit came at the expense of missing its forecast for monthly active users.
In 2023, around 17% (around 1,500 jobs) of its workforce was shed, in an effort to reduce overall costs.
Daniel Ek, Spotify’s CEO stated the measures were apart of, “substantial action to right size our costs”.
The company is on a mission to expand globally and reach a billion users by 2030.
Image description: Spotify CEO, Daniel Ek
Image courtesy of Inc Magazine
Spotify: A quick glance
What? An online platform that gives you access to millions of songs, podcasts and audiobooks.
Founder/s: Daniel Ek, Martin Lorentzon on 23 April 2006
Current CEO: Daniel Ek
Current share price: 289.59 euros (at the time of publishing)
An interesting fact about Spotify: There are more than 3 million podcasts on Spotify.
What factors have led to this?
The introduction of cost-cutting measures. As I mentioned earlier, Spotify laid off around 17% of its workforce. A large part of the reason was to cut back on costs. The extra cash gives them more money to invest in other parts of the business, such as their Research & Development, and their marketing department. Much of Spotify’s profits were due to the podcasting arm of the company- gross margins rose to 27.6% in the previous quarter, which is up from the 25.2% recorded a year prior.
It has raised prices. They did so to boost revenue and theyve experimented w diff subscription plans. Spotify reportedly plans to raise prices in the UK and other countries this month. If so, it’ll be the second time this year that they have made the decision. They will increase prices by around $1 to $2 and customers could face an extra £19 added to their annual bill. It’s understandable as to why they’d want to do so- inflation is hight, interest rates are still elevated. This economic environment isn’t good for many businesses as it often leads to a time of struggle for them. Could the potential price hike deter customers? Possibly. Price is something many customers are weary of at a time like this, so this move can either be beneficial or discouraging for them.
They have unique features? Can state one, and if there is another, state in in the subsection below.
Image courtesy of Yuga Tech
What implications could this story have?
It aids Spotify on their mission to reach a billion users by 2030 and helps them to expand worldwide. There are some markets that the company hasn;t reached yet. The extra cash can help them to expand into such countries to ramp up the number of users and subscribers they have.
More money into their podcasting arm. Mr Ek stated, “it (podcasting) was a drag last year. Now it is another profit centre for us.” Many businesses tend to spend more on areas that are working for them (in terms of finances). Spotify could therefore decide to pump more money into this area of the businesses to grow it even further. The streaming service has also highlighted plans to provide a music-only tier. I think this will be a great addition, especially for those who want to only use Spotify to jam away.
Image courtesy of Harvard Health Publishing
Spotify’s competitors:
Spotify is just one of the major and most popular streaming platforms out there. Competition from Amazon Prime Music, YouTube music, Apple music and even Google Play Music, make the global streaming market a tough place to exist. But Spotify isn’t doing that bad. They’ve also acquired 24 companies, with their most recent one being Whooshka in 2021.
In some cases, it’s somewhat easy to see why some prefer Spotify to other competitors, like Google Play Music. In other cases, a clear winner is hard to see. Take a look at Spotify and Apple Music. They’re both great streaming platforms and offer great services. Whether it’s Apple’s live radio shows and exclusive content, to Spotify’s social features, such as giving listeners the ability to see what friends are listening to in real time, they both offer some good features.
Whatever your thoughts are on any of these streaming services, it’s clear to see that Spotify may be one of the harder companies to beat in this market.
Image courtesy of Tech Radar
Closing thoughts:
I think Spotify is doing pretty well. I use Spotify to listen to podcasts (any loyal FT News Briefing listeners here?). I use YouTube to listen to music. My overall opinion on Spotify may be a bit biased as a result, but I see Spotify doing well in the future.
Even though part of the reason for posting bumper profits came at the expense of some job losses, I think they’ll be hiring in the near future. As the company’s finances stabilise and go profits continue to beat expectations, human talent is one area they will have to invest in, in order to stay ahead of the competition and be innovative.
What are your thoughts on this story? Do you think Spotify will announce record profits in the next quarter? Why/why not? What other implications could this story have? I’d love to know your thoughts, comment below, message me on any of my social media platforms or send me an email: hello@parahinsights.com. I look forward to hearing from you!
Until next time, remember to stay curious!
Further resources:
‘Spotify turns up volume to make record profits’-Article by the BBC
‘Spotify Statistics 2022: What’s the Future of the Media Streaming App By Numbers’- Article by Appinventiv
‘Spotify is reportedly hiking prices again in the UK for the second time in a year’- Article by The Standard
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