Does Large-Cap Broadcasting company Spotify Technology have a sustainably profitable business model? By studying its gross margins and comparing them to its operating margins, we can gain insight into quality of its business. With gross margins at 26%, you might be telling yourself the Spotify Technology is profitable -- but there is more to the story.
Gross margins take into account only the cost of revenue, meaning the expenses directly related to each sale. So it's important to also look at operating margins, which take into account overhead costs. One way to look at it is that gross profit gives insight into Spotify Technology's market and the viability of its business model. Operating margins, on the other hand, show you how efficiently the company is implementing this business model.
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 13,247,000 | 9,850,000 | 26 | 4.0 |
| 2022 | 11,727,000 | 8,801,000 | 25 | -7.41 |
| 2021 | 9,668,000 | 7,077,000 | 27 | 3.85 |
| 2020 | 7,880,000 | 5,865,000 | 26 | 4.0 |
| 2019 | 6,764,000 | 5,042,000 | 25 | -3.85 |
| 2018 | 5,259,000 | 3,906,000 | 26 |
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 13,247,000 | 585,000 | -3 | 50.0 |
| 2022 | 11,727,000 | 626,000 | -6 | -700.0 |
| 2021 | 9,668,000 | 450,000 | 1 | 125.0 |
| 2020 | 7,880,000 | 442,000 | -4 | -300.0 |
| 2019 | 6,764,000 | 354,000 | -1 | 0.0 |
| 2018 | 5,259,000 | 283,000 | -1 |
The table above tells us that, on average, Spotify Technology has not been profitable over the last four years, which should be a warning sign to prospective investors. Indeed, the company's operating margins are sinking at rate of -24.6%
