NEW YORK, NY--(Marketwired - Oct 29, 2013) - PrivCo recently obtained Spotify's (PrivCo Private Company Ticker SPOTFYP) latest financial results. Spotify's revenue growth has been impressive. Unfortunately, so are its losses. PrivCo's analysis reveals that Spotify's high variable cost structure due to licensing fees limits its options to rein in costs.
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On Spotify's Financial Performance
Spotify's strong revenue growth has been impressive, with the company posting a 131% annual increase in sales compared to its 2011 results. Gross margins, which mainly reflect licensing fees relative to revenues, are also improving, now at 16.5%. However, Spotify's challenge is that its costs are not flattening quickly enough to become profitable. Even after having eclipsed Pandora, Spotify suffers from the highest costs of revenue in the business and this impairs the company's ability to generate an operating profit.
PrivCo's analysis of Spotify's financial statements shows that the company's cumulative losses now exceed $200 million, with the company now having raised nearly $300 million in outside funds. Recognizing its need to preserve cash, Spotify has managed to generate positive cash flow by deferring payments to its trade creditors: in fact, the annual increase in its trade payables balance accounts for more than all of Spotify's cash flow, indicating that the firm's cash management strategy is based on stonewalling suppliers.
"Spotify's business model suffers the same inherent challenges as an all-you-can-eat buffet restaurant," said PrivCo's CEO and Founder, Sam Hamadeh. "Its pricing is fixed but the costs are variable, causing losses from the heaviest users. The dilemma is that the heaviest users are also the ones most likely to return; the lightest users are the ones most likely to cancel. So the churn comes from Spotify's most profitable users."
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Topics: Spotify, Pandora, #Spotify, Internet Music