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Profits at Spotify's UK division climbed by 95% in 2018

Edmund Heaphy
Finance and news reporter
British singer-songwriter Sam Fender celebrates topping the charts with a Spotify homecoming show in North Shields, England. Photo: Dave Benett/Getty for Spotify

Profits at Spotify’s UK division jumped by more than 95% to £6.8m in 2018, according to new accounts published on Friday.

Advertising sales at the division, which make up a large proportion of its revenue, increased by almost 20% to £23.9m.

Overall revenue fell from £107m in 2017 to £77.8m in 2018, primarily as a result of decreased pass-through costs. The company had made nearly £84m from services offered to its Swedish parent company in 2017. This fell to just £53m in 2018.

The principal activity of the UK company, the accounts note, is the resale of advertising inventory and the provision of services to the parent company.

While Spotify subscriptions have generally been sold by the parent company since 2016, the UK division still generates income from a series of legacy agreements with third-party companies. Subscription revenue from those deals plummeted by 84% to £259,000 in 2018.

Spotify (SPOT) is the world’s most popular paid music-streaming service, and has long prioritised growth over profitability.

The company paid almost £2.8m in taxes in the UK in 2018, up more than 200% from the previous year.

The 285 employees at the division collectively earned almost £35m in compensation in 2018 as the company’s headcount climbed by more than 20%.

The parent company in February posted its first-ever quarterly operating profit, but has warned of a loss in 2019.

Investors are increasingly concerned about the company’s future profitability, and the company’s stock has fallen by more than 22% in the past three months.

Spotify, which will report third-quarter financial results on 28 October, faces increasing competition from giants like Apple (AAPL), Google (GOOGL), and Amazon (AMZN).

That has forced the streaming giant to make offerings that will dent its profit margins. In August, it said that users who signed up to its premium plan would get three free months of music, up from just one.