I just read that Spotify has never been profitable – yet they are the #1 music streaming service internationally for music. How can they continue to operate like this?
In: Economics
Tldr: investors thinks that spotify will eventually make money, so have granted them large amounts of cash that they can burn until they finally start making a profit, which can hopefully pay back the original investment.
Long answer:
There are no special rules. If you’re losing money then eventually you will run out of money, and if you run out of money you can’t stay in business.
So what’s happening to Spotify? Well they simply have access to enough funds to support these losses.
Looking at their most recent financial report, which shows their activity as of September 30 2019, in the 9 months leading up to the report, spotify made 23 million dollars.
Wait a minute, that means spotify is making money haha.
Well lets pretend that spotify was still losing money like it was last year.
From their 2018 annual report, for the entire year of 2018 spotify lost 78 million dollars. The cash they had at the time was 891 million. So basically spotify has so much money that it can sustain losses for a long period of time before it goes bankrupt.
This money comes from investors who believe spotify will eventually start making money (which it looks like it finally did), and they believe that over time they can gain back their initial investment and more
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