After a decade of chasing growth at the expense of profits, Spotify may have turned the corner in the third quarter of 2019.
For years, music and technology executives have wondered how a standalone streaming service can turn a profit. If so, how big must it become? In the case of Spotify, the answer is revenue of $1.92 billion in one quarter and $5.44 billion over nine months.
In the third quarter 2019, the music streaming giant turned a $60 million operating profit on $1.92 billion of revenue, and has eked out a $4.4 million operating profit over the first nine months of the year. Investors were impressed by financial gains, subscribers growing to 113 million and monthly active users reaching 248 million. Spotify's share price jumped 19% on Oct. 28, adding $4 billion of market capitalization -- even as its shares still trade 16% below the price at which it debuted on the New York Stock Exchange in April 2018.
The earnings release recalled The Smiths' song "How Soon is Now?": "When you say it's gonna happen now, when exactly do you mean? / See I've already waited too long." Both the industry and investors may feel profitability has come too slowly, but it has seemed inevitable. Spotify has improved its financials each year, one plodding step after another: in 2015, its operating loss was 12.1% of revenue. It improved to 11.8% in 2017, 9.2%; and 5.3% in 2018. Then, in the first nine months of 2019, Spotify's operating income -- not loss -- was 0.1% of revenue. That's a small win that shows what tech companies are supposed to do: scale the business until revenues cover both unavoidable costs (rent and content, for example) or more flexible spending (salaries, sales, marketing, office supplies, et al).