Spotify posts first full-year profit ever
Add Axios as your preferred source to
see more of our stories on Google.
After 18 years, Spotify's business has caught up to its global popularity.
Why it matters: With its first full year of profitability under its belt, the company now has the capital and momentum to focus on "accelerated execution," without eating at its margins, CEO Daniel Ek told Axios in an interview Tuesday morning.
- "We really do believe that we can be faster to shift improvements on the platform," Ek said, pointing to investments in its technology and product.
The big picture: In the past, Spotify has spent heavily upfront to build new product experiences, like podcasts, which dragged on its profits. But this year, Spotify plans to do more "with pretty much the same amount of resources that we already have at the company," Ek said.
- That should be a welcome message to investors, who have waited patiently for the Swedish tech giant to post consistent profits since it went public in 2018. Ek previously told Axios that newer product experiences, like audiobooks, aren't expected to incur as many upfront costs.
State of play: Spotify beat investor expectations for revenue, profit and user growth last quarter, sending shares soaring 9% in pre-market trading Tuesday.
- The company reported a record net income (€883 million), operating income (€477 million), free cash flow (€877 million) and gross margin (32.2%) for the fourth quarter of 2024 on Tuesday, signaling that its efforts over the past two years to focus on efficiency and monetization are working.
Zoom in: Last quarter was particularly strong for Spotify, thanks to the unprecedented popularity of its annual "Spotify Wrapped" organic marketing campaign.
- As Spotify's user base has grown, Wrapped's impact has accelerated, Ek said. The organic nature of the campaign suggests Spotify can find ways to grow its user numbers without relying solely on paid acquisition costs.
Zoom out: With 675 million monthly users and 263 million paid members as of last quarter, Spotify can be considered one of the largest streaming services globally.
- That scale has helped grow Spotify's ad revenue meaningfully. Last year, the company brought in nearly €2 billion in global ad revenue, up nearly four times from 2018, before it hired an ad chief to grow that business.
Between the lines: While the company is planning broad product and tech improvements, Ek said 2025 will be the year that Spotify "doubles down" on its investment in music.
- The case for Spotify and its relationship to the music industry is growth, Ek said. "If we grow, the music industry benefits." Spotify alone paid out a record $10 billion to the music industry last year, up from around $1 billion a decade ago.
- Ek pointed to the company's multiyear deal with Universal Music Group, inked last week, as an example of Spotify's value in driving growth and innovation for the industry writ large.
- The deal will see the two firms collaborating more closely on new products and experiences such as paid subscription tiers, bundling of music and non-music content, and a richer audio and visual content catalog.
What to watch: The bundling of non-music content with music as part of the UMG deal represents a key area of opportunity for Spotify as it continues to invest in audiobooks and its app as a destination for multipurpose listening.
- While Spotify competitors such as Amazon and Apple separate listening experiences via different apps for music, podcasts and audiobooks, Spotify has been intentional about bringing those experiences together to drive economic value for its users.
- Spotify's churn rate has remained remarkably low, despite price increases in 2023 and 2024.
