Spotify subscriptions pump up revenue, but operating loss widens

[May 24, 2016]  By Mia Shanley and Sven Nordenstam

STOCKHOLM (Reuters) - Spotify's revenues rose 80 percent in 2015 as it gained more subscribers for its music streaming service, but heavy spending on product development and international expansion meant a bigger operating loss.

The privately-owned Swedish firm, global market leader with more than 30 million paying users, is facing tough competition from others such as Apple Music and Alphabet Inc's Google, which offers YouTube and Google Play Music.

Filings obtained by Reuters from Luxembourg's company registry on Tuesday showed Spotify's revenues rose to 1.9 billion euros ($2.1 billion) in 2015, almost double the pace of growth from the previous year.

Subscriptions made up the bulk of revenues, while income from advertising nearly doubled to 195 million euros.

However, the Stockholm-based company, which provides free on-demand music or ad-free tunes for paying customers, made an operating loss of 184.5 million euros in 2015, compared with 165.1 million in 2014.

Spotify attributed its loss to substantial investments in product development, expansion and new personnel. Of its global staff of about 2,000, half are based in Stockholm. The company is registered in Luxembourg, where it files its financial reports each year.

MIdiA Research forecast in January that total revenue from streaming would grow from $4.5 billion in 2015 to $8.5 billion in 2020. Its report said Spotify's market share was 37 percent last year.

Key additions to its catalogue of music in 2015 included bands such as The Beatles and AC/DC. It also launched the popular Discover Weekly feature which offers two hours of custom-made music recommendations.

"This is the future of music and you should expect to see a lot of progress in this area during the coming years," it said.

The battle for users has intensified in recent months and Spotify has rolled out new content to attract new users. It now offers video, podcasts from the likes of TED Talks and NPR and a feature which matches music to the pace of a user's run.

Apple Music, launched just a year ago in more than 100 countries, is chasing Spotify and already has 13 million paying subscribers, while other competitors include Pandora Media Inc, German start-up SoundCloud and U.S. music producer and rapper Jay Z's Tidal.

A Spotify executive told Reuters earlier this month the company had actually seen a faster pace of growth since Apple Music's launch, as Apple had raised the profile of streaming.

Founded in 2006 by Swedes Daniel Ek and Martin Lorentzon, Spotify has financial backing from the likes of Northzone, Kleiner Perkins Caufield & Byers, Accel Partners and DST and now boasts of having close to 100 million users in about 60 markets.

The group said in the filing it intends to continue to make significant investments in developing new products and enhancing the functionality of its existing product.

Spotify recently raised $1 billion in convertible debt from investors including private equity firm TPG Capital and hedge fund Dragoneer Investment Group.

($1 = 0.8950 euros)

(Editing by Alistair Scrutton and Alexander Smith)

[© 2016 Thomson Reuters. All rights reserved.]

Copyright 2016 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.