Part of
Part Of
How Companies Make Money
Explore The Guide

How Spotify Makes Money

Spotify's Premium Service generates the largest share of its total revenue

Spotify Technology S.A. (SPOT) is an audio-streaming subscription service legally domiciled in Luxembourg, but whose operational headquarters are located in Stockholm, Sweden, where the company was first launched. Its streaming services are monetized through both premium subscriptions and advertising, officially designated as its Premium Services segment and Ad-Supported Services segment, respectively.

Spotify offers its services globally with a presence in 184 countries and territories, and boasts 406 million monthly active users (MAUs) and 180 million Premium Subscribers as of December 31, 2021. Some of the company's primary competitors include Apple Inc. (AAPL), Amazon.com Inc. (AMZN), and Google, whose parent company is Alphabet Inc. (GOOGL). Unlike these rivals, Spotify doesn't have devices on which its music-streaming service is preloaded, putting the company at a significant competitive disadvantage.

Key Takeaways

  • Spotify provides audio-streaming services.
  • The biggest share of Spotify's revenues comes from its Premium Service, which provides online and offline ad-free music and podcast streaming to paying subscribers.
  • Spotify aims to continue generating revenue through the retention of current users, attraction of new ones, and conversion of users of the Ad-Supported Services to the Premium Services.
  • Spotify recently launched a COVID content advisory tab on its platform in an effort to help stop the spread of disinformation about COVID-19.

Spotify's Financials

Spotify files financial statements with the U.S. Securities and Exchange Commission (SEC), but as a foreign entity, the company is not required to file in accordance with Generally Accepted Accounting Principles (GAAP). Instead, Spotify files in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Spotify announced in early February financial results for its 2021 fiscal year (FY), which ended Dec. 31. 2021. The company reported a net loss of €34 million ($38 million), a significant improvement from the net loss of €581 million in FY 2020. Annual revenue rose 22.7% to €9.7 billion.

Nearly half of Spotify's revenue originated in the following three countries: the U.S. at €3.7 billion, the U.K. at €994 million, and Luxembourg at €6 million, for a combined revenue share of about 49%. The other 51%, or €5.0 billion, originated in other countries throughout the world.

Spotify's Business Segments

Spotify monetizes its streaming services through two main business segments: Premium Services and Ad-Supported Services. The company provides segment breakdowns of revenue and gross profit. Spotify reported a consolidated gross profit of €2.6 billion in FY 2021, generating a consolidated gross margin of 27%.

Premium Services

Spotify offers audio-streaming services to both paying and non-paying members. However, paying members, known as Premium Subscribers, are able to enjoy unlimited online and offline access to Spotify's entire catalog of music and podcasts without having to listen to commercials. Spotify generates revenue from its Premium Service segment through subscription fees.

Spotify's Premium Services segment posted revenue of €8.5 billion in FY 2021, up 18.6% compared to the previous year. The segment accounted for about 88% of total revenue. Its gross profit rose 23.1% to €2.5 billion, comprising more than 95% of the total during the year.

Ad-Supported Service

Members who do not pay for a premium subscription are able to access Spotify's Ad-Supported Services. Such users have limited on-demand online access to the company's music catalog and unlimited online access to its catalog of podcasts. Users' streaming experience is interspersed with advertisements. Spotify's revenue from its Ad-Supported Services segment is primarily generated through the sale of advertising across its music and podcast content.

Spotify's Ad-Supported Services segment posted revenue of €1.2 billion in FY 2021, up 62.1% compared to FY 2020. The segment accounted for more than 12% of companywide revenue. Its gross profit rose nearly 20-fold to €117 million, comprising about 5% of the total during the year.

Spotify's Recent Developments

On March 28, 2022, CNBC reported that Spotify's COVID content advisory tab, which the company first announced in late January, was now visible on the company's podcasts and other content mentioning COVID-19. The tab directs users to Spotify's information hub on COVID-19. The decision to add the tab comes after a number of musicians and content creators decided to boycott the platform due to Spotify's airing of Joe Rogan's podcast, "The Joe Rogan Experience." The musicians and creators involved in the boycott say that Rogan's podcast spread misinformation about the COVID-19 vaccine.

On Feb. 16, 2022, Spotify announced that it was acquiring two podcast technology companies, Podsights and Chartable. Podsights provides tools that help advertisers to better measure and grow their podcasts. Chartable provides analytics tools to help publishers get to know and grow their podcast audiences. Financial terms of the deal were not disclosed.

How Spotify Reports Diversity and Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Spotify and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Spotify releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether Spotify discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Spotify breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.

Spotify Diversity & Inclusiveness Reporting
  Race Gender Ability Veteran Status Sexual Orientation
Board of Directors        
C-Suite
 
     
General Management        
Employees ✔ (U.S. Only) ✔ (Americas and Asia-Pacific Region Only) ✔ (Americas and Asia-Pacific Region Only) ✔ (Americas and Asia-Pacific Region Only)
Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Spotify Technology S.A. "Form 20-F for the fiscal year ended December 31, 2021," Page 34.

  2. Spotify Technology S.A. "Form 20-F for the fiscal year ended December 31, 2021," Page 36.

  3. Spotify Technology S.A. "Form 20-F for the fiscal year ended December 31, 2021," Page 35.

  4. Spotify Technology S.A. "Form 20-F for the fiscal year ended December 31, 2021," Page 7.

  5. Spotify Technology S.A. "Form 20-F for the fiscal year ended December 31, 2021," Page F-10.

  6. XE.com Inc. "1 EUR to USD - Convert Euros to US Dollars."

  7. Spotify Technology S.A. "Form 20-F for the fiscal year ended December 31, 2021," Page F-5.

  8. Spotify Technology S.A. "Form 20-F for the fiscal year ended December 31, 2021," Page F-25.

  9. Spotify Technology S.A. "Form 20-F for the fiscal year ended December 31, 2021," Page 49.

  10. Spotify Technology S.A. "Form 20-F for the fiscal year ended December 31, 2021," Pages 43-44.

  11. Spotify Technology S.A. "Form 20-F for the fiscal year ended December 31, 2021," Page 48.

  12. Spotify Technology S.A. "Form 20-F for the fiscal year ended December 31, 2021," Page 44.

  13. CNBC. "Spotify rolls out Covid disclosures after Joe Rogan boycott."

  14. Spotify Technology S.A. "Spotify Acquires Podsights and Chartable To Advance Podcast Measurement for Advertisers and Insights for Publishers."

Take the Next Step to Invest
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Service
Name
Description