Music streaming service Spotify is gearing up for its direct listing launch on the New York Stock Exchange next Tuesday, April 3. Yesterday, the platform released a “forward-looking statement” where it outlined its financial outlook for 2018 as well as its first quarter (which ends in just a few days). The company was careful to point out this statement was “subject to substantial uncertainty”; however, going by the numbers, Spotify expects to have a great 2018, with greater revenue, more paid subscribers, improved margins, and reduced losses.
So what does Spotify think the last few days of the first quarter of 2018 will bring? Well, the company expects to end the quarter with 168-171 million monthly active users, 28-31 percent increase from the same quarter last year. It also expects its paid subscribers, which numbered just over 70 million at the end of 2017, to increase to the 73-76 million mark. If the platform indeed achieves these numbers, not only will it mark a 41-46 percent year-on-year increase, it’ll also be one of the fastest growing quarters for Spotify’s paid service since its launch in 2008.
Spotify expects its revenue figures to hit €1.10-1.15 billion (US$ 1.36-43 billion) by the end of the quarter, a 22-27 percent increase year-on-year. However, the company is also anticipating a negative impact of about €95-105 million (US$ 117-130 million) in this quarter due to “changes in foreign exchange rates”. Overall, the company expects to see a margin of 23-24 percent by the end of first quarter 2018, with an operating loss of €50-€80 million (US$ 62-99 million). These are highly optimistic figures, to say the least, and as Recode points out, investors will be keen to know what has driven such rapid growth in the last three months.
In terms of the full year, Spotify is expecting the upward momentum and growth of the first quarter to continue, helped along by the direct listing. By the end of 2018, the company expects to see 198-208 million monthly active users (up 26-32 percent year-on-year), with 92-96 million paid subscribers, up 30-36 percent; total revenues of €4.9-5.3 billion (US$ 6-6.5 billion), up 20-30 percent year-on-year, with changes in forex rates driving a negative impact of approximately €260-300 million (US$ 322-372 million); and a gross margin of 23-25 percent, with an operating loss of €230-330 million (US$ 285-409 million). The company also expects to incur a cost of €35-40 million (US$ 43-49 million) for the direct listing itself.
Spotify has received a lot of media attention in the past few weeks after it finally announced its plans to enter the “big Indian market”, as well as for reducing underwriting and associated costs for its IPO by foregoing a Wall Street broker or company. However, as Bloomberg Businessweek has noted in an op-ed after yesterday’s forecast announcement, Spotify is still incurring quite high costs for its direct listing, especially given that the company’s financial gain from the listing will be minimal.
While Spotify’s margins may be improving, and Co-founder and CEO Daniel Ek might be extremely optimistic about the company’s future, the platform is yet to become profitable. All eyes will be on Spotify next Tuesday, and it will be interesting to see whether the platform is able to fulfil its own predictions for the year to come.
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