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  • Brett Schafer

Is India Crucial for Spotify?

Spotify is showing again this week that, at least for the time being, they will be opting for user and subscriber growth over short-term profitability. The music streaming platform announced this week they are partnering with T-series, the biggest music label in India.

Rumors have been swirling for a while that Spotify wants to enter the Indian market, and this is an indicator that a launch is coming soon. T-series owns the rights to over 150,000 songs and some of the most popular Bollywood artists, which is crucial to attracting potential users for the service.

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India is the holy grail for user growth.

India’s ginormous population of 1.3 billion people make it the most attractive emerging market for international tech giants like Spotify. The sheer enormity of the country has many corporations scrambling to find market share.

The most recent numbers Spotify has given say they have over 200 million MAUs and 87 million paying subscribers. As of last quarter MAUs were growing 28% Y/Y and paying subscribers growing 40%. These are already impressive numbers that could accelerate with the addition of India and other emerging markets.

(Note: if interested, check out our fundamental analysis podcast on Spotify for more in depth numbers on the company)

Since India is a poorer nation compared to Europe and the United States (Spotify’s biggest markets), expect the majority of India to be ad-supported users. This will likely decrease Spotify’s average revenue per user (ARPU) again, a trend that has investors worried about the company’s ability to become profitable.

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Spotify is sacrificing ARPU right now to gain more users.

Personally I think Spotify is making the right move. Trading in short-term profits in order to fund long-term user growth will eventually payoff financially. They are taking a page right out of the Netflix handbook, and if successful could be a boon for patient shareholders. That’s the beauty of the recurring revenue model: users are so sticky that profits can wait.

While India would be great for Spotify, success in the country is not make-or-break for the firm. They are already the biggest (and basically only) player in Latin America, Europe, Africa, and the Middle East, and split market share with Apple Music in the states. Spotify is here to stay, and investors should take notice.

Disclosure: The author may have interest in the companies talked about.

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Listen On: Spotify Apple Podcasts Disclosure: The author and podcast guests are not your financial advisors. Ryan Henderson and Brett Schafer are general partners and portfolio managers at Arch Capita

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