How Important Are Ad-Supported Subscriptions for Spotify?

Spotify has always employed a two-pronged business model: a free version with ads and limited mobile functionality and a premium version offering the full range of its features. Because the Swedish music streaming platform only counts premium subscribers and monthly active users, it's unclear how many people subscribe to the free tier. Spotify does release revenue splits, though. These show that while overall revenue is steadily growing, ad-supported subscriptions make up only a neglectable share of the company's earnings.

As our chart shows, in 2023, only 1.7 billion euros, or 13 percent of Spotify's total annual revenue of 13.3 billion euros, came from music and podcast advertising. Interestingly, this share hasn't really changed in the last five years, which suggests a limit to the efficacy of advertising revenue on the platform.

Apart from its revenue, Spotify's fourth quarter of 2023 was ahead of guidance in most areas, including gross margin, subscriber additions, active users and operating loss. Due to these better-than-forecasted results, the company's stock price soared to its highest point since December 2021, gaining around eight percent at the New York Stock Exchange between market close on February 5 and market open on February 6.