Spotify Technology has reported its first annual profit, marking a significant milestone in its financial journey as it benefits from strong user growth, price hikes, and a cost-cutting strategy.
This achievement follows months of focused efforts to enhance profitability, which included increasing subscription prices, reducing marketing expenses, implementing layoffs, and scaling back its once-aggressive investments in podcasting and audio content. These strategic measures have contributed to a strong financial performance, with the company projecting an operating income of 548 million euros ($566.2 million) in the current quarter.
The Swedish audio-streaming giant is targeting continued growth, with a goal of reaching 678 million monthly active users (MAU) and adding 2 million premium subscribers to bring the total to 265 million. Spotify CEO Daniel Ek emphasized the company’s commitment to experimenting with more personalized offerings to attract and retain subscribers.
One such initiative includes a new premium tier called “superfans of music,” which is expected to provide additional features tailored for dedicated music enthusiasts. Daniel Ek highlighted the importance of evolving beyond a one-size-fits-all approach, stating that the next phase of growth in the music industry will involve a variety of products catering to different listener preferences.
A key factor in Spotify’s record-breaking subscriber growth has been its popular Wrapped campaign, an annual year-end summary of users’ listening habits that generates widespread social media engagement and attracts new users to the platform.
This marketing strategy contributed to an 11 percent rise in premium subscribers, reaching 263 million in the latest quarter. Spotify reported record net additions of 35 million monthly active users, bringing the total to 675 million and exceeding internal expectations.
In addition to subscription growth, Spotify has intensified its focus on video music and podcast offerings to increase user engagement. The company has recently expanded the test rollout of its music video feature to new markets and introduced innovative tools designed to enhance engagement for content creators.
Analysts have noted that Spotify’s investment in visual and video content is reshaping its brand identity, transitioning it from an audio-only platform to a more diversified multimedia service. According to eMarketer analyst Grace Harmon, this shift appears to be yielding positive results, as Spotify moves beyond its traditional focus on audio streaming.
Financially, Spotify delivered strong results in the fourth quarter, with revenue rising 16 percent to 4.24 billion euros, surpassing the market estimate of 4.19 billion euros. This growth was fueled by an increase in premium subscribers and a 5 percent rise in average revenue per user, supported in part by the company’s decision to raise subscription prices in the U.S. in June of the previous year.
Profitability also saw significant improvements, with gross profit jumping 40 percent due to a 16 percent decline in operating expenses. Additionally, the company’s gross profit margin increased to 32.2 percent from 31.1 percent in the prior quarter, reflecting the effectiveness of its cost-cutting measures and strategic realignment.
