TechCrunch
Spotify Doubles Revenues In 2012 While Losing Money, Highlighting Royalty Squeeze
Spotify’s 2012 results are out today, with Reuters reporting that the private company had revenue of 435 million euros, and a 58.7 million euro net loss.
The revenue figure is impressive, more than doubling 2011′s 190 million euro tally. However, the company’s net loss widened in the year, even as it saw a dramatic expansion of its top line from 45.4 million euros to the aforementioned 58.7 million figure.
Spotify notes, in the document that Reuters attained, that as a company it “cannot exclude the need or desire to raise more funds in the future to fund future growth initiatives.” The company is essentially stating that it may again lean on outside capital to grow its operations and, presumably, find profits.
Spotify, its documentation revealed, pays around 70 percent of its revenue in royalty costs. So, for every dollar that flows into Spotify, 70 cents goes right back out the door to rights holders. I pay, like many of you, $10 to Spotify monthly for both desktop and mobile access to its tunes sans advertisements. From this perspective, I pay the music industry $7 per month to listen to its music, and $3 to Spotify to deliver it.
A music company with growing revenue, low cash reserves, and a niggling loss? That’s not just Spotify, it’s also Pandora, a rival to the Stockholm-based company music streaming company.
Pandora, for its most recent quarter, the first of its fiscal 2014 year, lists its “content acquisition costs” at $82.85 million. Its gross revenues for the period totaled $125.5 million. Pandora therefore pays out 66 percent of its revenue to cover the cost of the music that it spins out to its vast listener network.
Pandora and Spotify pay, therefore, around the same royalty rate. And it’s strangling them both. Spotify is unsure if it will need an additional shot of capital to make it to profits, and the public markets, and Pandora is shedding cash no matter how you measure it:
Total cash and cash equivalents:
- FQ1 2013: $65.7 million
- FQ1 2014: $55.4 million
Cash, cash equivalents and short-term investments:
- FQ1 2013: $88.9 million
- FQ1 2014: $75.4 million
Total cash equivalents and marketable securities [fair value]:
- FQ1 2013: $66.3 million
- FQ1 2014: $56.3 million
Pandora lost $28 million in the quarter, up from $20 million the year before, even as its revenue grew from $80.7 million to $125 million for the comparable first quarter in fiscal year 2013 and FY 2014.
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If growing their revenue isn’t an effective tool for the firms to find short-term profits, as their expenses do not decrease as a percentage of revenue given their fixed royalty costs, can the two companies not run out of gas? In the short term, they are more than safe. Spotify can raise capital from the private sector, and Pandora, as a public firm, has ways to raise rash.
However, the longer term efficacy of their business model is perhaps somewhat unsettling; if profits can’t be found in greatly expanded revenues, from whence can they be sourced? The simple answer is that royalty rates may need to ease to allow the two firms to find positive margins on their businesses.
Last year, Reps. Chaffetz and Polis introduced the Internet Radio Fairness Act, which aimed to do this at least for Pandora. As The Hill reported at the time: “According to statistics provided by Chaffetz’s office, Internet radio services pay more than 55 percent of their revenue in royalty fees, while cable and satellite stations pay between 7 and 16 percent. “
However, as we have seen, that 55 percent number is quite low. For fun, if Spotify paid the 55 percent rate, would it be profitable? Using back of the envelope scribbling, the answer appears to be yes: 70 – 55 = 15. Fifteen percent of 435 million euros is 65.25 million euros, which is greater than its first-quarter loss of 58.7 million euros. So, the company would have booked a profit in the realm of 6.5 million euros.
If that rate were further decreased, Spotify and Pandora would in fact be comfortably profitable. However, even at the 55 percent rate, both companies’ chances of knocking out real net income appears far healthier.
There could be cost cuts at both firms, but as long as the 66 or 70 cents they take in leaves before they take into account other expenses — development, advertising, content delivery, and so forth — the squeeze will remain in place. The question then becomes whether the music industry will hug the two so hard that in the end each suffocates. Something has to give.
Top Image Credit: Serendipiddy
Airbnb Updates Mobile Apps To Give Hosts Tools For Listing And Managing Spaces From Their Phones
Peer-to-peer marketplace company Airbnb has released new versions of its mobile apps that will give users better tools for managing their listings on the go. The app also has taken a big step forward by enabling users to list their space directly from their smartphones.
The new versions of the Android and iOS apps are in part a response to increasing mobile adoption by Airbnb users, but also an acknowledgement that getting them on mobile apps speeds up the process. Hosts who use the company’s mobile apps tend to be more responsive than those who are only on the website, because DUH, the mobile phone is always with them. That means they are quicker to respond to prospective guests and more likely to confirm a booking.
Airbnb mobile engineering lead Andrew Vilcsak said that hosts using the mobile apps respond three times faster than those who are only on the website. And so, bookings happen potentially eight times faster from the apps. With that in mind, Airbnb wanted to make its apps even more useful and powerful, with more tools for managing their listings on the go.
With the latest update to the Airbnb iOS and Android apps, the company now lets hosts list their spaces directly from within the app. For first-time hosts, it will even provide them with a guide for how to do so.
The app was built to massively simplify the process of listing a space. For instance, it has location verification to ensure that the space you’re listing is where you say it is, as well as instant phone verification. To list a space, users must also upload photos, which is easy because they can upload them directly from their phones.
In addition to making it easier to list a space, hosts now have more tools for managing their listings as well. The app has an updated calendar feature that will allow hosts to show when their spaces are available. They can also fully update and manage their listings, including photos, descriptions, and what not.
Yelp Beats Street Estimates In Q2 With Revenue Of $55M, EPS Loss Of $0.01
Today Yelp beat expectations, reporting second quarter revenue of $55.0 million, and a per-share loss of $0.01. Analysts had expected the company to lose $0.04 per share, on revenue of $53.3 million.
That’s a beat, but not a massive victory. However, the company’s net revenue increase of 69% compared to the second quarter of 2012 has sent its stock up nearly 7% in after hours trading. Investors like what they see.
The company’s vanity, if perhaps useful metrics point up and to the right: Average monthly traffic for the company is up to 108 million unique visitors, representing growth of 38% year over year. Yelp now has 51,400 “active local businesses,” up 62% in the last year.
After adjustments, Yelp’s EBTIDA came in at $7.8 million.
The Great Mobile Shift continues apace, with Yelp showing 40% of its advertisements on mobile devices. However, while companies such as Facebook are seeing their mobile incomes rapidly increase, Yelp’s 40% number is only a 4% improvement on its first quarter figure. Also, the company doesn’t break out its mobile revenue as some other companies do, merely its mobile advertising share, which could easily not correlate directly to income portion.
Yelp’s cash position is essentially unchanged in the past 6 months, growing by under $2 million to rest at the end of the quarter at $96 million in cash and equivalents.
All told, it was a solid quarter for Yelp, slightly beating expectations, keeping its cash in place, and growing its traffic. Still, if it wants to fundamentally change how the market values it, an acceleration will be required.
Top Image Credit: Jakrapong Kongmalai
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