Spotify Actually Turned a Profit in Q4 2018

In a surprise development, music streaming giant Spotify posted its first-ever profit in the quarter ending December 31, 2018. But don’t worry, it probably won’t happen again.

“For the first time in company history, operating income, net income, and free cash flow were all positive,” a Spotify letter to shareholders announced.

It’s not going to last: Spotify’s surplus in the recent quarter was largely due to gains from its investment in Tencent Music, which went public in the quarter. And Spotify forecasts a loss in every quarter in 2019, and for the entire year, in keeping with its financial trajectory since the service launched in 2008.

That’s not to say there wasn’t plenty of good news in the earnings report, and to its credit, Spotify is surprisingly transparent and candid about how things are going. The firm provided plenty of data.

Key data points include:

• Monthly average users grew 29 percent year-over-year to 207 million, exceeding expectations.
• Premium (paid) subscribers grew 36 percent YOY to 96 million, hitting the high end of the company’s expectations.
• That gain was attributed this mostly to a 4th quarter promotion for a free Google Home Mini. “We believe home voice speakers are a critical area of growth, particularly for music and audio content,” the firm noted. 7 million new subscribers were added during the 6-week campaign.
• Spotify is now available in 78 countries worldwide, up from 65 a year earlier.
• 40 percent of Spotify customers are in Europe, compared to 30 percent for North America, 20 percent for Latin America, and 10 percent for the rest of the world.
• Customers listened to over 15 billion hours of content during the fourth quarter alone.
• Of the $1.71 billion in Q4 revenues, $1.5 billion came from premium (paid) subscribers. Ad-supported revenue was a bit over $200 million. Both grew revenues by over 30 percent.
• Over 300,000 creators use the Spotify for Artists platform on a monthly basis.
• Spotify announced that it is accelerating its investment in podcasting by acquiring two podcast firms, Gimlet Media and Anchor. The firm plans to spend a total of $400 million to $500 million on “multiple acquisitions” in this area in 2019. “Growing podcast listening on Spotify is an important strategy for driving top of funnel growth, increased user engagement, lower churn, faster revenue growth, and higher margins,” the firm explained.

As for the future, Spotify expects to end 2019 with 245-265 million active users, of which 117-127 million will be paid premium subscribers. It expects to post an operating loss of $228 million to $411 million on revenues of $7.24 billion to $7.76 billion this year.