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Spotify Q1 2018 Earnings Steady Course But Is It Enough?

Report by Mark Mulligan
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The 20,000 Foot View: On the XXX May 2018 Spotify released its first quarterly earnings. The results fundamentally represent a continuation of the figures presented in Spotify’s XXX filing and show strong results across most performance metrics. Nonetheless, investors were not satisfied (apparently spooked by growing losses), resulting in a dip in Spotify’s stock price. Such are the challenges Spotify is going to face as a public company, with investors that are not willing to make allowances for the nuances of the recorded music business. In this report, we leave the stock valuation to the financial analysts and instead dive into Spotify’s performance metrics and what they signify.

Key Findings

  • Spotify hit XXX million subscribers, up from XXX million in XXX 2017, which is in line with MIDiA’s XXX million forecast
  • Total MAUs reached XXX million, while ad supported users grew by XXX on XXX 2017 (a slightly slower rate than subscribers) to reach XXX million 
  • Europe continues to be Spotify’s number one region with XXX million subscribers representing XXX of the total
  • Europe added the most subscribers year on year (nine million), followed by North America and Latin America (both six million) while Rest of World added three million
  • Ad supported growth between XXX 2017 and XXX 2017 was equal to or higher than subscriber growth in all regions except Europe
  • Total gross margin was XXX in XXX 2018, more than double the XXX registered one year earlier
  • Ad-supported gross margin increased dramatically from XXX to XXX reflecting that this is where Spotify got the biggest rights holder rate cuts
  • Premium ARPU was down to XXX the lowest level throughout 2016 to XXX 2018
  • Spotify generated an average of XXX gross profit per subscriber with music rights holders earning an average of XXX compared with Netflix’s XXX 2015 results, Spotify has near identical subscriber but lower ARPU and higher costs of sales

Companies and brands mentioned in this report: AOL, EMI, Spotify, Seagram, Thorn Electrical Industries, Universal Music, Vivendi, Warner Music

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