Spotify revealed its 2024 Q4 numbers today, sending its share price soaring past $600 – marking an extraordinary reversal for a company whose stock bottomed out at under $80 just over two years ago.
From burning cash and posting a €659 million loss in 2022, Spotify has engineered a remarkable reinvention, delivering €1.365 billion in operating profit for 2024, and a full year of profitability. Revenue is now at €15.673 billion, up from €13.2 billion in 2023, while gross margins – essentially Spotify’s “cut” after paying out royalties and other content costs, and long the company’s Achilles heel – reached a record 32.2% in Q4.
That’s a dramatic improvement from the 26.7% they were seeing a year ago, and means Spotify is keeping nearly a third of its revenue before operating costs.
The margin improvement is particularly interesting given the wider industry dynamics at play. While Spotify’s controversial audiobook bundling strategy helped reduce some royalty payments in the US, their new deal with Universal Music tells a more complex story.
On one hand, the direct publishing agreement presumably eliminates the bundling advantage for Universal’s songs catalogue. But it also suggests a more mature relationship between the two companies – when your market cap is double that of Universal Music Group, and potentially on track for a three times multiple – perhaps both sides see more value in strategic collaboration than fighting over mechanical licensing loopholes.
Looking ahead, CEO Daniel Ek’s emphasis in today’s call on moving beyond “one-size-fits-all” pricing to “tailor the experience to different subgroups” hints at how Spotify might sustain these improved margins – not through regulatory ducking and diving, but through better monetisation of its highest value listeners.
On today’s call, Ek characterised the company’s remarkable recovery as the result of a deliberate strategic progression. After 2022’s focus on investment and 2023’s drive for efficiency, 2024 became the “year of monetisation”.
2025, says Ek, will be “the year of accelerated execution”, emphasising the company’s ability to “pick up the pace dramatically when it comes to our product velocity” – a confident stance from a leader whose company now eclipses the value of the “most successful music company in the history of the music industry”, Universal Music Group.
This accelerated execution was articulated by Chief Product & Technology Officer Gustav Soderstrom in what was almost a footnote to today’s main event, as he took an analyst’s question as an opportunity to explain how Spotify has transformed its operational approach.
Rather than the traditional corporate hierarchies you’d perhaps expect in a company of Spotify’s size, Soderstrom and co-President Alex Nordstrom run a single unified team of about fifteen people – dubbed the “E-team” – which sets the company strategy in six month sprints. Senior executives pitch their ideas – or “bets” in Spotify speak – for these sprints, which are then stack-ranked into a “bets board” that sets clear priorities for the entire company.
The cultural shift is evident even in small details. When asked about new CFO Christian Luiga’s impact on the company, Ek quipped that the main visible change since the CFO joined the streaming business was that Luiga “used to have a suit and tie on every day. And as evident from Spotify’s culture, he’s now sitting in a t-shirt”.
For the music industry, this new operational approach has significant implications. While Spotify’s evolution from pure-play music streamer to an “everything audio” platform continues, the speed of execution raises questions about how both company focus and consumers’ on-platform attention and engagement time might shift away from music consumption.
Video podcasts, says Spotify, are booming – over 330,000 video podcasts, with 270 million users trying the format – but the company insists that this is not cannibalising music listening. Whether that holds true in the long term is another question.
Indeed, Ek’s comments about moving away from a “one-size-fits-all” pricing strategy could signal a meaningful boost to music industry revenues. “The next version of the music industry”, he argued on today’s call, “is one where we’re going to tailor the experience of Spotify to all of these different subgroups”. This suggests a future where high-value listeners might pay significantly more than today’s standard premium rate.
Notably, Spotify seems increasingly focused on quality over quantity when it comes to user growth. Luiga emphasised that the company is “not prioritising retention of the recent influx of lower engagement users” as they “continue to focus on growing higher value users”.
This selective approach to user acquisition and retention suggests a company confident enough in its market position to optimise for value rather than raw subscriber numbers – something that potentially delivers significant value to Spotify’s music industry partners over the long term.
Ek’s focus on higher-value users marks another significant shift in Spotify’s strategy. “Ever since starting this company eighteen years ago”, he explained on today’s call, “everything for Spotify has been about getting meaningful scale. The first sixteen years, all we were focused on was driving that scale – we did not worry about profitability. That’s why you heard me say we had a great product, but not necessarily a great business”. Now, through cost reductions and improved monetisation, “we’re proving that we’re a great business too”.
This evolution from growth-at-any-cost to profitable growth provides important context for the much-vaunted – but still not announced – “super fans” tier. Despite having been extensively teased, there’s still little official communication from Spotify about what this might look like.
That said, Ek was far more effusive about this on today’s call than he was on the last quarterly call. “I’m personally super excited about this one”, he said. “This is a product I’ve been waiting on for quite some time as a super fan of music. I’m playing around with it now, and it’s really exciting”.
Of course, we’ve heard this sort of enthusiasm before. Back at the end of Q2, Ek was talking about a $17-18 price point and a “deluxe version of Spotify”. Before that, the focus was on hi-res audio – a feature competitors like Apple Music and Amazon Music have offered for years, and one that many expected would form the cornerstone of Spotify’s premium offering. Today’s comments hint at something potentially more ambitious, though details remain scarce.
With Universal pushing hard for better monetisation of superfans (its analysis suggests 20% of premium subscribers would pay more), Spotify’s continued dance around the launch timing is interesting – especially given their strengthened market position. The fact that Ek emphasised “control” and “flexibility” rather than audio quality in his comments today might suggest the company is looking beyond the traditional hi-fi offering to something more comprehensive.
This fits with Ek’s broader vision of “the next version of the music industry” being one where Spotify moves beyond one-size-fits-all pricing to “tailor the experience to all these different subgroups”. With a market cap now double that of Universal Music Group and consistent profitability, Spotify appears increasingly confident in setting its own agenda for the future of music streaming.
Perhaps most significant is how Spotify is investing in and using AI within its business. Rather than pursuing headline-grabbing AI-driven features (though these exist, with AI DJ and AI-generated playlists apparently proving popular with users), they’re taking a more pragmatic approach.
Sodestrom outlined three key areas where AI is being used to drive efficiency: developer productivity, content moderation costs and user experience – with the latter extending beyond mere recommendation to deeper personalisation. “We think AI presents a great opportunity for products”, said Soderstrom. “It’s important for us to always be at the very cutting edge of this… We want to be the company that’s the best in the world at building AI-based products. This is why you see us innovating and trying these things before others”.
The content moderation aspect is particularly interesting for the music business. Soderstrom noted that AI has made features like podcast comments economically viable for the first time – “Previously, the costs for moderation were just prohibitive for a company like us”.
Spotify’s success on this front – and the fact that Soderstrom specifically picked this out for mention – suggests that the company will be exploring how that low-risk iteration of applied-AI on a consumer-facing part of the platform could be rolled out to unlock new forms of fan engagement around the company’s music products – again, something that perhaps makes the delays to that possible ‘super fan’ offering make more sense.
The company’s push into education (currently testing in the UK) and its overhaul of advertising technology provide further evidence of this methodical approach to platform evolution. While these might seem tangential to music, both could serve as testbeds for features that eventually enhance artist-fan relationships. Educational content, which Ek values as a $2-2.5 trillion opportunity, could perhaps create new formats for artist-led content and music education.
The new programmatic ad platform is particularly intriguing. While Luiga admitted they were “late to the ball” on programmatic advertising, the infrastructure they’re building could transform how artists reach potential fans. The possibility of a “Spotify pixel” – similar to Meta’s tracking pixel – could allow artists to retarget their existing web audiences with audio ads on Spotify, potentially creating more sophisticated conversion funnels for super fan offerings. Combined with their existing user data and AI capabilities, this could offer unprecedented targeting precision for artist marketing.
Looking ahead, Ek’s emphasis on “accelerated execution” seems to be more than just CEO rhetoric. With €7.5 billion in cash and investments on their balance sheet, consistent profitability, and a share price that provides valuable currency for potential acquisitions, Spotify appears better positioned than ever to shape the future of music consumption. The question now isn’t whether they can afford to innovate, but rather how quickly they can roll out new features while maintaining the disciplined approach that’s driven their remarkable turnaround.
As always, the tensions between the music industry on one side and Spotify on the other inform any discussion of how Spotify might evolve its business. However, a company that once seemed perpetually caught between Wall Street’s demands and the music industry’s interests seems to be finding an easier footing.
While Spotify’s evolution – and increasingly powerful position in the music industry ecosystem – is bound to continue to cause anxiety for industry veterans, Spotify’s focus on higher-value users and enhanced monetisation tools could ultimately deliver more value to artists and rightsholders than its previous growth-at-any-cost approach.
This new confidence is driven, in no small part – from a Wall Street perspective at least – by the rocketing share price. That performance – up more than sevenfold from its December 2022 lows of $79 to break through $600 – creates its own opportunities and challenges.
The soaring share price has triggered higher social charges (payroll taxes tied to share-based compensation) of €96 million in Q4, €80 million above what the company had forecast, but also provides valuable currency for potential acquisitions.
Moreover, with the stock now well above $600, a stock split – where shareholders are issued, for example, five new shares for each share they hold, increasing the number of shares, and reducing the market price – seems increasingly likely. That could further improve trading liquidity, and potentially provide Spotify more flexibility when it comes to M&A activity.
The soaring share price also has implications for Spotify’s debt which is backed by convertible notes issued in 2021 when the stock was trading around $300 – before it plunged to its end-of-2022 low. With the shares now above $600, these notes are deeply in the money – meaning holders are likely to opt for conversion of their bonds to shares rather than cash repayment at maturity. That’s a win-win: noteholders get the upside they bet on, while Spotify avoids having to refinance the debt in what could be a much less favorable interest rate environment in 2026.
For the music industry, these developments present both opportunities and challenges. A financially robust Spotify – with consistent profitability, a strong balance sheet, and significant strategic flexibility – could be a more reliable partner than the cash-burning pivot-shifting company of years past.
Its focus on higher-value users and enhanced monetisation tools suggests a future where streaming might finally begin to deliver the value that labels and artists have long demanded, tying very much in with Universal’s “Streaming 2.0” thesis.
However, this same strength means – as I’ve said before – that Spotify can increasingly chart its own course. Its emphasis on AI implementation, its push into video content, and its careful approach to super-premium pricing all suggest a company that’s confident enough to prioritise its own strategic vision over pressure from its more forceful industry partners.
The era of “Streaming 2.0” may be defined as much by Spotify as it is by the demands of the major labels, and with the financial resources to back its ambitions, the streaming giant now appears well placed to shape the future of music consumption, rather than simply enabling it.