Message received and mission accomplished. Since then, the number of subscribers has risen from 188 million to 276 million, and the number of active users from 433 million to 696 million. Above all, cash profit – or free cash flow – has literally exploded, from €21m at end-2022 to €2.6bn over the last twelve months.
There is one major difference in how Netflix and Spotify use this sudden avalanche of profits: the American company is actively returning them to its shareholders through share buybacks, while the French company is piling them up on its balance sheet, perhaps with a view to fuel future external growth.
Yesterday, Spotify's H1 results were given a frosty reception by investors, mainly because the cost of remuneration – particularly stock options – pushed the accounts into the red, and founder and CEO Daniel Ek admitted to a painful underperformance in the group's advertising business.
It is true that growth in this segment has been half as fast as that of the subscription segment, which still accounts for nine-tenths of consolidated revenue, since mid-2022. In a market that may be saturated, or on the verge of saturation given Spotify's current dominance, investors fear that revenues may have peaked.
These fears are justified by recent price increases and yesterday's results, which show a worrying stagnation in free cash flow over the last four quarters.
In any case, it is not surprising that the market is taking a breather after a meteoric rise in the share price. This rise brought the valuation to almost fifty times free cash flow. Spotify therefore has no choice but to maintain its growth performance in order to sustain it.
