Spotify has two revenue streams: the monthly fee paid by its premium subscribers, and the fees that advertisers pay to appear on its non-premium services.
The company has announced that it has 71 million premium subscribers out of 159 million total monthly active users. Those 71 million premium subscribers make up the vast majority of revenue: just 10% of the money Spotify made in 2017 came from advertising.
One thing to note about Spotify is that for the moment it doesn’t actually make any profit – in 2017, its operating loss was €378 billion. Much of that is down to the royalties it pays for its music, with almost 80% of the money coming in going straight out again.
A tech IPO that makes a loss isn’t particularly unusual, with Facebook, Twitter and Snapchat all arriving on the markets before they turned a profit. But Spotify’s road to profitability could be a key consideration in its early days on the markets.