Spotify intheredSchadenfreude is the only true joy. It's time to rejoice again. Spotify is in the red. The phrase "in the red" is used to describe a business that is operating at a loss. The phrase “in the black” refers to a business that are profitable and financially solvent. These phrases are derived from the colour of ink used by accountants. It would be more fitting if the colour of the Spotify logo were red. In Q4 2018 their financial report showed that operating income, net income, and free cash flow were positive for the first (and probably only) time. Finally, investors and shareholders would get return on their investments. However, one swallow doesn't make a summer. In Q1 and Q2 2019 everything went back to normal again. The financial report for Q2 2019 is indeed a very gloomy read. Operating loss amounted to €3 million (3,3 million dollar) and net loss was €76 million (84 million dollar). According to the Q2 report Spotify has about 108 million paying (premium) users (of a total of 232 million users) in Q2 2019, which makes 46 percent. The business model is based on conversion theory (by providing freemium, users will upgrade to premium). The share of paying users has increased the last five years, but the growth rate has leveled out. The share of paying customers is the same in Q1 and Q2 2019. After more than 10 years the share of paying users is still below 50 percent. Is this sustainable? Serious business analysts believe that a business model built on freemium will never be profitable. The stagnant conversion rate should cause panic in the board room, but instead the destruction of capital continues. What can we expect in the near future? In the Q2 report there's an outlook for Q3 and Q4 2019. The report is filled with misleading siren calls. The prognosis isn't directly accurate. Spotify expects a very small operating income or a large operating loss. The concluding disclaimer takes corporate bullshit to a new and unprecedented level: "These forward-looking statements reflect Spotify’s expectations as of July 31, 2019 and are subject to substantial uncertainty." Deeds, not words. 


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