Part 4/7:
Despite impressive user growth, Spotify faces significant financial challenges. The company reported revenues of €4.1 billion in 2017, representing a 39% year-over-year increase. However, around 90% of this revenue came from premium subscriptions, highlighting its reliance on this segment.
One significant concern is the high cost of revenue associated with royalty payments, which consumed approximately 80% of Spotify’s revenue. Although the company improved its gross margins from 12% to 21% between 2015 and 2017, these royalty costs continue to weigh heavily on overall profitability, contributing to sizable operating losses.