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A research firm has found that Spotify is growing but so are its net losses. Unless the company changes its trajectory, it might not last.
We’ve highlighted Spotify in the past, with a case study about the popular streaming music service. The popularity of the service has grown exponentially over the past few years, so you would guess that the company’s profit margins are through the roof. Unfortunately, a research firm that specifically tries to extract financial data about private companies has found that Spotify might not be doing as great as we once thought.
PrivCo did the research for Spotify’s financials in 2010 and 2011. It appears as though Spotify has claimed it had over $244 million USD in revenue during 2011, which equates to a 151% growth from 2010. But the data also showed that the company had a 60% net loss of $59 million USD. The industry is taking note because that loss is higher than what the company had reported previously. Two months ago, the Wall Street Journal said that Spotify had a loss of $57 million USD. It also only reported the company made $236 million USD in revenue.
The trend the firm uncovered from year to year is that the bigger Spotify becomes, the bigger its losses will become. PrivCo founder and CEO Same Hamadeh said, “Spotify’s 2011 results indicate that drastic changes must be made quickly to its business model in order to generate growth while actually improving operating margins so that break-even, let alone profitability, is somewhere, anywhere, on the horizon.” Mashable reached out to Spotify for a comment but received no reply.
Why is Spotify on this unsustainable trajectory? Because just about every dollar the company makes has to turn right around and pay off the licensing fees and royalties that recording companies require from the service in exchange for streaming their artists’ music. Additionally, Spotify increased its employee costs by over 170% which didn’t help the company’s bottom line.
Despite these setbacks, Spotify has fifteen million active users all over the world, and four million of those are using the premium, paid version of the service. Hopefully more and more users will be convinced of the value of a paid Spotify subscription, or else the company might not make it to next year.
To read more about Spotify’s growth, click here to check out our blog post about companies fishing for more users on Facebook.