Spotify posts first-ever profitable year, beats Q4 expectations

The news: Spotify delivered strong Q4 2024 earnings, exceeding revenue expectations and closing out its first full year of profitability. Shares surged 8% in premarket trading following the earnings release, capping a 150% rally over the past year.

By the numbers:

• Monthly active users (MAUs): 675 million, up 12% year over year (YoY), surpassing analyst estimates of 665 million.
• Paid subscribers: 263 million, up 11% YoY.
• Total revenues €4.2 billion ($4.54 billion), up 16% YoY.
• Gross margin: Improved 555 basis points YoY to 32.2%, a record high.
• Q4 profit: €367 million ($396.6 million, or $1.82 per share), a dramatic improvement from a €70 million loss in the prior year.

What’s working:

• Cost efficiency: Layoffs, reduced podcast investments, and other cost-cutting measures helped turn losses into profits.
• Premium pricing: New subscription tiers, including audiobook and music-only plans, allowed for multiple price hikes.
• Music licensing: A multiyear deal with Universal Music Group announced late last month offers better artist compensation while potentially eliminating a $200 million annual bundle discount on US mechanical royalties.

Why it matters: Spotify’s shift toward profitability and monetization is paying off, proving it can sustain growth while improving margins.

• Pricing power: Despite multiple price hikes, subscriber churn remains low, signaling strong consumer demand.
• Margin expansion: Gross margin, once stuck at 25%, exceeds 30%, achieving long-term targets ahead of schedule. Gross margin of 32.2% exceeded expectations but is expected to ease slightly to 31.5% in Q1 2025.

Our take: Spotify’s 2024 performance marks a transformation—the company is no longer just about subscriber growth but has achieved profitability. While margin expansion may slow in 2025, Spotify has multiple levers to drive revenues, from additional price increases to new subscription models and ad-supported innovations.

• The UMG deal underscores the power struggle between streaming platforms and record labels, with investors eager to assess its financial impact.
• With strong pricing flexibility and tighter cost controls, Spotify appears well-positioned for long-term profitability—especially as it continues to monetize its non-podcast media efficiently.