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. 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.
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