Spotify Technology, the leading global music streaming service, recently celebrated a significant milestone as it reported its first annual profit since the company was founded. Shares of Spotify surged by more than 10% following the announcement of their strong fourth-quarter earnings, which exceeded analysts' expectations and reflected substantial user growth. This profit marks the end of years of operating losses since its launch back in 2008.
The Stockholm-based company added 35 million monthly active users (MAUs) during the quarter, bringing the total to 675 million, marking the largest quarterly increase to date. This result was 10 million above what analysts had projected, indicating Spotify's successful strategies for attracting and retaining users.
CEO Daniel Ek expressed his enthusiasm during the earnings call, stating, "2024 was the year where we really showed what we are capable of." He emphasized the company's commitment to doubling down on music and hinted at even greater ambitions for 2025, which he dubbed the "year of accelerated execution." This forward-looking approach signals Spotify's continued dedication to enhancing its platform and user experience.
Spotify's revenue for the fourth quarter rose 16% year-over-year, reaching €4.24 billion (approximately $4.38 billion), surpassing the consensus estimate of €4.16 billion. This achievement was bolstered by favorable currency movements and intrinsic business strength, which fueled the company's performance heading toward the new year.
The company's net profit for the quarter stood at €367 million ($379 million), swinging from a loss of €70 million the previous year. While this profit was slightly below some analysts' expectations, Spotify's gross margins surged to 32.2%, reflecting the success of its efficiency initiatives over the past year. Analysts had forecasted higher earnings per share, but the growth achieved is undeniably promising.
Spotify’s recent price hikes seemed to have little impact on user retention. Despite two rounds of increases within the past year, churn rates remained low, confirming the streaming platform's strong pricing power. The strategic move to raise subscription prices was accompanied by improvements to its service, which has been attracting new paying subscribers.
Adding to its success, Spotify introduced various new features and content types, including audiobooks and exclusive podcast deals. These expansions have not only diversified its content offerings but have also increased engagement among users. The audio giant reported investing close to $10 billion on royalties throughout the year, underscoring its commitment to the music industry.
The company also highlighted the success of its "Spotify Wrapped" campaign, which has now become one of the biggest user engagement drives of the year. The campaign recorded significant increases of 10% year-over-year engagement across 184 markets and 53 languages, showcasing Spotify's ability to personalize user experience effectively.
Looking forward, Spotify expects MAUs to reach approximately 678 million by the end of the first quarter in 2025, with premium subscribers projected at 265 million. Total revenue for this upcoming quarter is estimated to be €4.2 billion, highlighting continuous growth and resilience amid competition from other major platforms such as Apple Music and YouTube Music.
Spotify's stock has become increasingly attractive to investors, experiencing significant gains and more than doubling from its lows last year. This positive trend is largely attributed to the comprehensive changes made within the company, including strategic overhauls initiated during its 2022 Investor Day.
Geetha Ranganathan, Bloomberg Intelligence's senior media analyst, notes multiple catalysts on the horizon, including the introduction of new pricing tiers and expansions within the audiobook sector.
While the road to profitability has been challenging, Spotify’s persistence and innovative strategies have finally yielded results, earning its first full-year profit as it prepares to tackle new goals for 2025. Investors, who once watched uncertainly, are now seeing tangible returns, reflecting confidence not only in Spotify’s performance but also its overall business model moving forward. The company appears set to continue its growth and enhanced user engagement as it forges new paths within digital audio.