Spotify multiplies its losses sevenfold and accepts need to cut costs
In the last quarter of the year, Spotify’s accounts showed a loss of 270 million euros compared to a negative 39 million euros the previous year, almost seven times more, with an increase in operating costs of 44%. This scenario explains the dismissal of around 600 employees, around 6% of the workforce, announced just a few days before the presentation of these results. Despite the rising red numbers, the Swedish company completed the reporting period with its new record number of new users at the end of the year, 33 million, after far exceeding its own expectations.
With those additions, Spotify ended 2022 with 489 million monthly active accounts, up 20% from 2021, of which 205 million were premium subscribers. Those users generated 86% of the company’s €3.166 billion revenue in the quarter, while commercial monetisation of the remaining 295 million amounted to €449 million and 14% of the total. Advertising continues to be driven by podcasts, a segment that is now the platform’s new leader following the departure of Dawn Ostroff. The former head of content and advertising business had designed the strategy for the format since her arrival in 2018, with successive purchases of studios and exclusivity agreements, among other milestones.
It now remains to be seen to what extent this changeover and the current global economic conditions will affect a change in podcast policy. Spotify has invested heavily in the format in an attempt to consolidate an advertising business that would allow it to escape the fixed costs of the rights to the music it serves, which absorb approximately 70% of its turnover. But the company says that 2023 will be a year of seeking efficiency so that revenues grow faster than costs, unlike the previous year. In fact, it points out that the gross margin of 25.3% above forecast in the last quarter of last year is partly due to lower investment in podcasts.
The platform increased its operating costs by 44% and recently announced the dismissal of around 600 employees.
This new phase of greater austerity at the platform starts with the stock more than 70% below the highs it reached during the pandemic and the need to convince investors that Spotify’s current course will eventually lead to profits. Those black numbers are still relatively far away: in 2022 the Swedish company posted a loss of 430 million euros on 11.7 billion euros of turnover, almost a 13-fold increase on the previous year’s red numbers.
