Spotify Is a Booming, Billion-Dollar Business

Spotify says it has 12.5 million paying subscribers. If you do some very simple math, you can guesstimate that the company is going to end up doing more than a billion dollars in revenue this year.

Another reason you can feel comfortable guessing that: A year ago, when the music streaming service was smaller, it had already hit the $1 billion mark.*

That number comes courtesy of a new filing Spotify made today in Luxembourg, which spells out its 2013 financials in considerable detail. That doesn’t tell us how the company did this year, of course. But it’s very helpful to get a sense of direction.

Big picture: As of last year, Spotify was growing very fast, but wasn’t making any money. The good news is that the company’s top line was growing faster than its losses, which is one of the reasons it could raise money at a $4 billion valuation a year ago. And it suggests that CEO Daniel Ek’s argument — that the company could indeed be profitable if it didn’t plow more money into growth — might hold up.

Here’s a snapshot of the company’s P&L from last year. Note that revenues were up more than 70 percent, while its operating loss grew by less than 20 percent.

And here’s a breakdown of revenue and expenses. Not surprisingly, the bulk of Spotify’s revenue — $834 million (605 million euros) — went back out the door, via payments to music rights holders and other distribution costs. That’s the number that Taylor Swift and other artists say should be even higher.

The other thing to note that is that Spotify’s subscription revenues are increasing much faster than its ad revenues. If you want a positive spin on that, you would argue that this is a sign of health for its subscription business — last year, the company ended up with 8 million subscribers paying about $10 a month; earlier this month the company said it had 12.5 million paying subs.

The half-empty view: Spotify’s advertising business, which is supposed to defray the cost of all that free music it provides, may not get big enough to satisfy rights holders.

And for music business completists, another note: We can now see what Spotify paid for Echo Nest, the music data service, last March. That deal, which cost 55 million euros (about $72 million, at the exchange rate at the time), was paid for primarily in stock. The company had raised a reported $26 million.

* We’re using the Euro/dollar exchange rate from Dec. 30 2013 for most of the numbers in this article.