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Spotify Subscriptions Boost Revenue But Operating Loss Widens

Spotify Press AnnouncementSpotify Press Announcement
Spotify founder Daniel Ek.Photograph by Taylor Hill — FilmMagic/Getty Images

Spotify’s revenues rose 80 percent in 2015 as it gained more subscribers for its music streaming service, but heavy spending on product development and international expansion meant a bigger operating loss.

The privately owned Swedish firm, the global market leader with more than 30 million paying users, is facing tough competition from others such as Apple (AAPL) Music and Alphabet’s Google (GOOG), which offers YouTube and Google Play Music.

Filings obtained by Reuters from Luxembourg’s company registry on Tuesday showed Spotify’s revenues rose to 1.9 billion euros ($2.1 billion) in 2015, almost double the pace of growth from the previous year.

Subscriptions made up the bulk of revenues, while income from advertising nearly doubled to 195 million euros ($218 million).

However, the Stockholm-based company, which provides free on-demand music or ad-free tunes for paying customers, made an operating loss of 184.5 million euros ($206 million) in 2015, compared with 165.1 million ($184.5 million) in 2014.

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Spotify attributed its loss to substantial investments in product development, expansion, and new personnel. Of its global staff of about 2,000, half are based in Stockholm. The company is registered in Luxembourg, where it files its financial reports each year.

MIdiA Research forecast in January that total revenue from streaming would grow from $4.5 billion in 2015 to $8.5 billion in 2020. Its report said Spotify’s market share was 37 percent last year.

Key additions to its catalog of music in 2015 included bands such as The Beatles and AC/DC. It also launched the popular Discover Weekly feature, which offers two hours of custom-made music recommendations.

“This is the future of music and you should expect to see a lot of progress in this area during the coming years,” it said.

The battle for users has intensified in recent months and Spotify has rolled out new content to attract new users. It now offers video, podcasts from the likes of TED Talks and NPR, and a feature that matches music to the pace of a user’s run.

Apple Music, launched just a year ago in more than 100 countries, is chasing Spotify and already has 13 million paying subscribers, while other competitors include Pandora (P), German start-up SoundCloud, and U.S. music producer and rapper Jay Z’s Tidal.

A Spotify executive told Reuters earlier this month the company had actually seen a faster pace of growth since Apple Music’s launch, as Apple had raised the profile of streaming.

Founded in 2006 by Swedes Daniel Ek and Martin Lorentzon, Spotify has financial backing from the likes of Northzone, Kleiner Perkins Caufield & Byers, Accel Partners, and DST, and now boasts having close to 100 million users in about 60 markets.

The group said in the filing it intends to continue to make significant investments in developing new products and enhancing the functionality of its existing product.

Spotify recently raised $1 billion in convertible debt from investors, including private equity firm TPG Capital and hedge fund Dragoneer Investment Group.