How Spotify Makes Money

Spotify Technology S.A. (SPOT) is an audio-streaming subscription service legally domiciled in Luxembourg, but whose operational headquarters are located in Stockholm, Sweden, where the company was first launched. Its streaming services are monetized through both premium subscriptions and advertising, officially designated as its Premium Services segment and Ad-Supported Services segment, respectively.

Spotify offers its services globally with a presence in 184 countries and territories, and boasts 602 million monthly active users (MAUs) and 236 million Premium Subscribers as of December 31, 2023. Some of the company's primary competitors include Apple Inc. (AAPL), Amazon.com Inc. (AMZN), and Google, whose parent company is Alphabet Inc. (GOOGL). Unlike these rivals, Spotify doesn't have devices on which its music-streaming service is preloaded, putting the company at a significant competitive disadvantage.

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 in accordance with Generally Accepted Accounting Principles (GAAP). Instead, Spotify files in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Spotify financial results for its 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 following three countries: 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%. The other 51%, or €6.78 billion, originated in other countries throughout the world.

Spotify's Business Segments

Spotify monetizes its streaming services through two main business segments: Premium Services and Ad-Supported Services. The company provides segment breakdowns of revenue and gross profit. Spotify reported a consolidated gross profit of €3.4 billion in FY 2023, generating a consolidated gross margin of 26%.

Premium Services

Spotify offers audio-streaming services to both paying and non-paying members. However, paying members, known as Premium Subscribers, are able to enjoy unlimited online and offline access to Spotify's entire catalog of music and podcasts without having to listen to commercials. Spotify generates revenue from its Premium Service segment through subscription fees.

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. Its gross profit rose 15.16% to €3.33 billion, comprising more than 98% of the total during the year.

Ad-Supported Service

Members who do not pay for a premium subscription are able to access Spotify's Ad-Supported Services. Such users have 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 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. Its gross profit rose to €62 million, comprising about 2% of the total during the year.

Spotify's Recent Developments

On March 28, 2022, CNBC reported that Spotify's COVID content advisory tab, which the company first announced in late January, was now visible on the company's podcasts and other content mentioning COVID-19. The tab directs users to Spotify's information hub on COVID-19. The decision to add the tab comes after a number of musicians and content creators decided to boycott the platform due to Spotify's airing of Joe Rogan's podcast, "The Joe Rogan Experience." The musicians and creators involved in the boycott say that Rogan's podcast spread misinformation about the COVID-19 vaccine.

On Feb. 16, 2022, Spotify announced that it was acquiring two podcast technology companies, Podsights and Chartable. Podsights provides tools that help advertisers to better measure and grow their podcasts. Chartable provides analytics tools to help publishers get to know and grow their podcast audiences. Financial terms of the deal were not disclosed.

How Spotify Reports Diversity and Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Spotify and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Spotify releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether Spotify discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Spotify breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.