Reports Music

Spotify Q4 2018 Earnings Strong Subscriber Growth With a Hint of Profitability but Long-Term ARPU Deflation

Report by Mark Mulligan
Cover image for Spotify Q4 2018 Earnings
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The 20,000 Foot View: Spotify finished 2018 strongly, over performing in both subscriber and ad-supported MAU additions. This was accompanied by Spotify’s first ever profitable quarter and two major podcast acquisitions early in 2019, hinting at a positive year ahead. However, at the same time, premium ARPU continues a long-term decline. This is the price Spotify is paying for maintaining global subscriber market share.

Key Findings

  • Spotify hit XXX million subscribers, up XXX from XXX million in XXX 2017
  • Spotify added XXX million net new subscribers in XXX 2018, the same as in XXX 2017
  • Ad-supported users grew strongly, adding XXX million, which was significantly more than the XXX million added the previous year
  • Europe is now a majority premium region for Spotify, with XXX of European MAUs in XXX 2018 paying a subscription 
  • Year-on-year, North American share of global subscribers decreased from XXX in XXX 2017 to XXX in XXX 2018
  • Annual European growth was largest with XXX million registered in XXX 2018 – this was XXX higher than XXX 2017, compared to a XXX increase in Latin America
  • Globally, XXX 2018 points to Spotify improving conversion rates in all markets, and potentially becoming a majority premium business at some stage in 2019 or 2020
  • Premium revenue in Europe grew by XXX in 2018 (adding XXX million net new revenue) compared to XXX annual growth in 2017 XXX million net new revenue)
  • Ad-supported revenue grew by XXX in 2018 (adding XXX million net new revenue) compared to XXX XXX million net new revenue) in 2017
  • Premium revenue needs new momentum, while ad-supported revenue needs to start delivering  
  • Following a peak of XXX in XXX 2018, Spotify brought quarterly churn rates down to XXX in XXX 2018 and then XXX in XXX 2018
  • The cumulative impact of churn throughout the year gave an annual churn rate of XXX up from XXX in 2017 
  • Spotify added XXX million gross new subscribers in 2018 compared to XXX million in 2017
  • Premium ARPU declined from XXX in 2016 to XXX in 2018, a fall of XXX the same period, ad-supported ARPU followed a mirror opposite trend, growing XXX from XXX to XXX slightly increased its global subscriber market share to XXX in 2018, up from XXX in 2017, but is having to discount pricing aggressively to do so
  • Spotify’s average advertising revenue per user (AARPU) grew by just XXX in 2018, but investments in ad tech and infrastructure will likely see accelerated growth in 2019
  • Podcasts are Spotify’s next big play, and will likely see Spotify commissioning top-quality radio content from right under the noses  of radio companies

Companies and brands mentioned in this report: Amazon, Amazon Music Unlimited, Anchor, Apple, Apple Music, Gimlet, Spotify

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