Spotify is in trouble

The music streaming service's massive growth doesn't make up for profit problems.

by Jack Torrance
Credit:  Sorosh Tavakoli/Flickr
Credit: Sorosh Tavakoli/Flickr

Spotify's growth is undoubtedly impressive. It was founded in 2008 by Sweden's Daniel Ek, who was inspired by equally impressive though not-so-legitimate Napster, and now has 50 million users, 12.5 million of which are paying subscribers, in 58 countries. It's also captured the imagination of investors, who have poured around $500m (£318m) into the company since its inception, valuing it at around $3bn.  

Yesterday its latest growth figures adhered to this trend - sales grew 73.6% last year to €746.9m (£592.9m). But it's not all rosy. While it reported a fall in net losses from €86.7m in 2012 to €57.8m, its operating losses, which are arguably a better indicator of performance, grew 16.4% to €93.1m.

This is partly driven by the fact it paid €605m in royalty costs - more than 80% of its revenue. This highlights the fact that Spotify is at its core just a facilitator – primarily connecting consumers with streams of music, rather than investing in music of its own. That being the case its library, currently unbelievably large, can only continue to grow at a certain pace.

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