Spotify Losses Accelerate as Revenue Grows to $1.22 Billion

Spotify continues to employ a formula frequently seen in technology companies: lose money while growing fast. Revenue for the world’s largest music subscription service rose 45 percent to €1.08 billion ($1.22 billion), according to various reports regarding the company’s financial statement filed in Luxembourg.

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Even more size was added last year. The company added €333 million to its top line, an improvement from the €317 million improvement in 2013 and the €240 million gain in 2012. The company’s head count was 1,354, up from 958 a year earlier.

Growth in subscribers has come from a controversial freemium business model and geographic expansion. Spotify finished 2014 with 15 million subscribers globally along with 45 million monthly users of its free, advertising-supported service. Subscription revenue accounted for 91 percent of revenue, the same percentage achieved in 2013 and considerably higher than 87.1 percent in 2012. After launches in the Philippines, Canada and Brazil in 2014, the service is available in 58 countries. 

But growth has come at a cost. Spotify’s operating loss more than nearly doubled to €165 million from €93 million in 2013 and €80 million in 2012. Back in 2010, the year before Spotify launched in the United States, its operating loss was just €21.9 million.

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Not that the company is likely to run short of cash. Last week, Spotify was reported to have raised $350 million at an $8 billion valuation. The latest funding raised the company’s total funding to $887.8 million, according to publicly tracked information at Crunchbase.

The combination of deepening losses and sizeable funding raises the question of when the company will be acquired or, as has been rumored, undertake an initial public stock offering, or IPO. One thing Spotify has is market share. Its 15 million subscribers represent about 37 percent of the 41 million global subscriptions estimated by the IFPI. But investor sentiment could change once Spotify is directly competing with Apple’s upcoming subscription service.

An IPO wouldn’t be a surprise, however. Spotify ranks 16 out of 285 companies tracked on Manhattan Venture Research’s latest “Liquidity Watch List,” a ranking of private companies deemed candidates for either an IPO or an acquisition. The list has a number of high-growth technology companies expected to provide exits to early investors. One spot ahead of Spotify is Fitbit, the maker of wearable fitness technology that announced its plans for an IPO on Friday (May 8). One spot behind Spotify is Airbnb, the online accommodation marketplace that has raised $794.8 million.