How Spotify Makes Money

Spotify’s Premium Service generates the largest share of its total revenue

Reviewed by Amilcar ChavarriaReviewed by Amilcar Chavarria

Spotify Technology S.A. (SPOT) is an audio-streaming subscription service legally domiciled in Luxembourg, with operational headquarters in Stockholm, Sweden, where the company launched. Its streaming services are monetized through its Premium Services and Ad-Supported Services segments.

As of Dec. 31, 2023, Spotify served 184 countries and territories with 602 million monthly active users (MAUs) and 236 million Premium Subscribers.

Key Takeaways

• Spotify provides audio-streaming services.
• The biggest share of the company’s revenues comes from its Premium Service.
• Spotify generates revenue through user retention, new customers, and conversion of users of the Ad-Supported Services to Premium Services.

Spotify’s Industry

Spotify’s competitors include Apple Inc. (AAPL), Amazon.com Inc. (AMZN), and Google, whose parent company is Alphabet Inc. (GOOGL). Unlike its rivals, Spotify doesn’t have devices on which its music-streaming service is preloaded.Spotify monetizes its streaming services through two business segments: Premium Services and Ad-Supported Services.

• Premium Services: Audio-streaming services for paying members, known as Premium Subscribers, who enjoy unlimited online and offline access to Spotify’s entire catalog of music and podcasts without commercials. Spotify generates revenue from its Premium Service segment through subscription fees.
• Ad-Supported Services: Provides limited on-demand online access to the company’s music catalog and unlimited online access to its catalog of podcasts. Users’ streaming experience is interspersed with advertisements. Spotify’s revenue from its Ad-Supported Services segment is primarily generated through the sale of advertising across its music and podcast content.

Spotify’s Financials

Spotify files financial statements with the U.S. Securities and Exchange Commission (SEC), but as a foreign entity, the company is not required to file following Generally Accepted Accounting Principles (GAAP). Instead, Spotify files per the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

Financial results for fiscal year (FY), which ended Dec. 31. 2023, reported a net loss of €532 million, an increase from the net loss of €430 million in FY 2022. Annual revenue rose 13% to €13.25 billion.Nearly half of Spotify’s revenue originated in the U.S. at €5.23 billion, the U.K. at €1.23 billion, and Luxembourg at €9 million, for a combined revenue share of about 49%. Nearly 51%, or €6.78 billion, originated in other regions.

Spotify’s Premium Services segment posted revenue of €11.57 billion in FY 2023, up 12.83% compared to the previous year. The segment accounted for about 87% of total revenue.Spotify’s Ad-Supported Services segment posted revenue of €1.68 billion in FY 2023, up 13.89% compared to FY 2022. The segment accounted for more than 12% of companywide revenue.

History and Leadership

Daniel Ek and Martin Lorentzon founded Spotify in 2008. Ek is the company’s CEO in 2024. The site hosts 100 million music tracks, 6 million podcast titles, and 350,000 audiobooks. Spotify’s headquarters is located in Stockholm, Sweden.

Recent Developments

In 2024, Spotify funded $50,000 in scholarships to North Carolina A&T State University students interested in pursuing careers in audio media, including podcasting, storytelling, writing, sound engineering, and music. Through the company’s Creator Equity Fund (CEF), NextGen supports other historically Black colleges and universities (HBCUs) including Spelman College, Howard University, and Hampton University.

When Did Spotify Go Public?

Spotify Technology S.A. went public on Apr. 3, 2018, by a direct listing of its shares on the New York Stock Exchange (NYSE). In a direct listing, outstanding shares are listed on a stock exchange without a primary or secondary underwritten offering. 

Where Are Spotify Offices Located?

Employees work at offices located in North America, Europe, Asia, Latin America, the Middle East, and Africa.

How Much Does Spotify Premium Cost?

In the U.S., Premium service costs $11.99 per month in 2024.

The Bottom Line

Founded by Daniel Ek and Martin Lorentzon, Spotify went public in 2018. Headquartered in Sweden, the company provides an audio-streaming subscription service to 184 countries and territories.

Read the original article on Investopedia.