Spotify Reports “Record” Profit? Looking ‘Beyond the Numbers’
In this month’s Finance ‘In-Action’ we’ll check in with Spotify and look ‘behind the numbers’ at what influenced Spotify’s “record” quarter and the factors affecting its future performance.
At the end of Q1, 2024, Spotify reported a Net Income of 197 million euros, from a gross profit of just over 1 billion euros. This was the first time Spotify reported a gross profit of over 1 billion.
These results were the outcome of strategies (management decisions) to increase gross margins (exit from ‘relationships’ generating less revenue) and control expenses (reduce marketing expenses and salaries) to raise operating margins.
Q1/2024 results were also influenced by an increase of almost 600 million euros in revenue compared to the same period last year (Q1/2023)1. This increase resulted from growth in subscribers, less than expected according to BBC, and an increase in subscription fees.
Beyond the numbers ● Revenue increased from 2020 to 2022 by 20% each year, in 2023 the increase was only 13% ● CEO Daniel Ek indicated marketing expenses now need to be increased ● Q1/2024 Spotify reduced R&D expenses by 40 million euros ● Spotify’s gross margin has been affected by high licensing and royalty costs ● Since going public in 2018 it has not reported a Net Profit (annual basis)3
Is this ”record” profit a ‘one-off’? How will Spotify continue to increase revenue if new subscribers are declining? How does lowering R&D affect its ability to retain customers? How will profitability be affected by increased marketing expenses?
Spotify Turns Up the Volume to Make Record Profits, Jemma Dempsey, BBC News, BBC April 23, 2024
1. Spotify Q1, 2024 Financial Statements. 2, Research & Development 3. Yahoo Finance 4. Limited to a single time, occasion or instance, Merriam-Webster.
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