Spotify has been around for over a decade but despite boasting over 100 million active users — approximately 40% of which are paying customers — the said music streaming service isn't quite profitable. Namely, Spotify's owners decided to run the service by relying on some basic principles of venture capitalism. In other words, over the years, Spotify raised quite a bit of private funding from investors who believed the service will continue growing and eventually become profitable. For the most part, Spotify spent the cash it raised wisely, i.e. to continue fueling growth. As adding users to an online service like Spotify usually means your revenue will grow much faster than your expenses, that service should theoretically become profitable as long as it continues growing. That's more or less what Spotify has been aiming for since 2008. As it turns out, that strategy may finally begin paying off.
Namely, as revealed by Par-Jorgen Parson, a general partner at Northzone, one of Spotify's oldest investors, the European startup could "absolutely" become profitable as early as next year. Now, by following the strategy outlined above, Spotify has been posting massive losses for over a decade, so this news is rather significant and will certainly make a lot of the company's investors happy. According to a valuation from last year, Spotify is still worth around $8 billion despite posting almost $200 million in operating losses in 2015. While speaking to Reuters earlier today in Helsinki, Parson revealed that everyone at Northzone is looking forward to an initial public offering (IPO) at some point in the future. Given how Northzone is the second-largest Spotify shareholder, they could certainly push for an IPO whenever they feel the time is right.
Spotify has long been rumored to go public on the Nasdaq stock market at some point next year. If the company indeed manages to turn a profit in 2017 or at least break even, that would certainly seem like a perfect opportunity for it to go public and raise another enormous amount of cash which it could use to continue fueling growth. As for the company's long road to profitability, Parson told Reuters that everything is going according to plan and that Spotify's business model simply cannot turn profitable overnight seeing how the company initially has to cover the costs of royalties every time it's trying to expand to new territories and attract new users.