While this isn't insignificant, investors shouldn't be too concerned about this cost.īecause of its low gross margin, Spotify stock trades at a much lower P/S ratio than many other tech companies. Spotify racked up 223 million euros in share-based compensation this year, which also increased the share count by 3%.
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The main difference between net income and free cash flow is the addition of share-based compensation to the net income number.
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Over the full year, Spotify generated 277 million euros in free cash flow, and 37% of it came from Q4's 103 million euros contribution. However, at a mere negative 0.4% full-year net income margin, investors shouldn't be worried about its profitability.ĪRE ADVISORIES ENOUGH? Spotify to add advisories to podcasts discussing COVID information amid protestsįrom a free cash flow perspective, the business is profitable. Higher costs in research and development (R&D) and sales and marketing (S&M) drove the larger-than-average Q4 loss. With a 26.5% gross margin during Q4, there isn't much room for expenses above the bottom line. In both Q4 and the full fiscal year, Spotify lost 39 million euros and 34 million euros, respectively. 'SILENCING HIM' IS NOT THE ANSWER: Spotify CEO condemns Joe Rogan's use of racial slurs Spotify is within inches of turning a profitĮven though Spotify is considered a tech stock, its margins are far from its software-as-a-service (SaaS) counterparts. While ad-supported users will likely never be worth more to Spotify than premium ones, monetization improvement is a welcome development. Improving its ad-supported revenue model drove overall revenue growth. This year, it increased its gross profit by 1,850% to 117 million euros.
In 2020, Spotify made a measly 6 million euros in gross profit from its ad-supported base. While investors may be spooked by ad-supported users growing faster than premium ones, they should be delighted in how it is monetizing them. The chart shows how each usage option contributes to gross margin. Spotify's main business plan is to convert free users into paying ones, as it makes more money from its premium model. Ad-supported subscribers grew even quicker at a 19% clip year over year, to 236 million from 199 million. In Q4, Spotify's premium subscribers grew 16% year over year to 180 million from 155 million. To get rid of ads and unlock the platform's full capabilities, Spotify offers a premium subscription for listeners who want the best possible experience. It offers a free platform that restricts some features and inserts ads every so often the listener must play. Spotify has two usage options for its platform, which is home to more than 82 million tracks and 3.6 million podcasts. The company just released fiscal 2021 fourth-quarter earnings results, which include some telling numbers about the state of the business. SUBSCRIBE TO OUR NEWSLETTER: The Daily Money delivers our top personal finance stories to your inbox Ad-supported users are growing faster – but there's a catch Spotify investors may have differing opinions on Rogan and his guests, but at the end of the day, it's still a high-level controversy and they have to make the same decision: Is Spotify worth investing in? Spotify CEO Daniel Ek defended Rogan's podcast, which is top-ranking in 90 of Spotify's markets, and he said on the fourth-quarter earnings call, "We don't change our policies based on one creator, nor do we change it based on any media cycle or call from anyone else." Rogan has apologized for the controversy and said he will make more effort to educate himself about topics discussed and fact-check guests that speak about controversial topics.
Spotify has not pulled the podcast episodes in question, but it has included content warnings on the episodes containing discussion of COVID-19. The situation has investors wondering about the company and the stock. Recording artists like Neil Young and others have pulled their music from Spotify's streaming subscription service in protest over what they believe is misinformation regarding COVID-19 being discussed by guests on Rogan's podcast. Joe Rogan's exclusive podcast on Spotify (NYSE: SPOT) has been getting a lot of attention lately, and not necessarily for good reasons. Watch Video: How Spotify is responding to Joe Rogan podcast, COVID misinformation
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