Spotify is chasing annual profitability. SoundCloud’s already there.

SoundCloud is experiencing something new, a full 16 years after it was founded: annual profitability.

According to company data shared with Music Business Worldwide, SoundCloud is currently on course to post a slim – but positive – EBITDA for calendar/fiscal 2023.

The firm’s internal guidance shows that it’s currently projecting annual revenues of EUR €288 million (USD $310m) for 2023, up 7.5% YoY or 9% YoY at constant currency (USD).

(SoundCloud GmbH, headquartered in Berlin, reports its financial numbers in Euros.)

Yet the bigger story for SoundCloud and its CEO Eliah Seton is that the company’s EBITDA is moving into the black.

SoundCloud is forecasting a €2 million positive EBITDA for 2023, Seton tells MBW, representing a significant improvement from the €29 million negative EBITDA the firm posted in 2022.

What’s more, says Seton, SoundCloud has now achieved eight consecutive months of profitability on an EBITDA basis.

 “Reaching profitability matters because it reinforces that we are pursuing the right strategy and have taken the necessary steps to turn around the business,” Seton tells MBW.

“Reaching profitability matters because it reinforces that we are pursuing the right strategy.”

Eliah Seton, SoundCloud

Although SoundCloud doesn’t primarily consider itself a DSP for listeners – it also runs a significant creator services operation – the timing of the company’s shift to profitability is foreshadowed by some interesting recent events.

Take Spotify. In Q3 2023, Daniel Ek’s company posted a rare operating profit of €32 million.

What was even more rare? The rhetoric from SPOT that followed: after years of chasing growth over profitability, it was now shifting focus to the latter.

Spotify CFO Paul Vogel told the firm’s investors in October that “expectations are now that we will consistently be in the black moving forward“. (It’s since been announced that Vogel is leaving the business.)

For Seton, comparisons between SoundCloud and Spotify don’t always tesselate neatly.

Still, he acknowledges that the music industry’s biggest digital brands may be headed into an era where investors value annual income as much as they do shoot-for-the-moon ambition.

“As a profitable growth company, we now have the foundation to build the future of fandom and the fan-to-creator economy,” he says.

Although we don’t yet have final numbers from SoundCloud for its current financial year, we do have some additional color on what’s been driving its performance in 2023.

The firm says that it’s seen a 30% YoY increase in annual revenues from fan subscriptions – i.e. subscription payments from listeners as well as ad revenue generated by people pressing play – this year.

SoundCloud’s ‘creator’ business, meanwhile – i.e. fees paid by artists for access to distribution, tools, and services to market/monetize their music – has seen 4% YoY growth in 2023.

SoundCloud’s gross profit, according to its guidance, has shown 10% YoY growth this year, up from EUR €94 million in 2022 to EUR €104 million in 2023. The latter represents an annual gross margin of 36.1%.

One interesting accelerant behind SoundCloud’s profitability this year? More efficient spending on marketing, people, and overhead.

SoundCloud was one of the first music industry companies to publicly announce a staff reduction in 2023 – a group of firms that this year have also included Warner Music Group and BMG.

SoundCloud cut 8% of global headcount in May; at the time, Eliah Seton said: “This is a challenging but essential decision to ensure the health of our business and get SoundCloud to profitability this year.”

(Last week, of course, Spotify announced that it was axing 17% of its global workforce – affecting around 1,500 employees. Daniel Ek said the move was essential due to a “gap between our financial goal state and our current operational costs”.)

Earlier this week, SoundCloud announced that it has struck an A&R partnership to jointly develop talent with Patrick Moxey’s Helix and Payday Records.

That followed similar partnerships that SoundCloud has struck with the likes of Jax Jones’ and Dan Stacey’s UK-based, dance-focused record label, WUGD (What You Gonna Do) Ltd., as well as Kevin “Coach K” Lee and Pierre “P” Thomas’ Solid Foundation.Music Business Worldwide