Why did Spotify's net profit skyrocket in 2024?

Spotify's net profit skyrocketed in 2024 due to a combination of factors that contributed to substantial revenue growth and margin improvement:

1. Revenue Growth: Spotify reported a 19% year-over-year increase in revenues, reaching €15.7 billion. This growth was driven by strong user engagement and monetization efforts.
   • Total monthly active users (MAUs) grew by 12% to 675 million, with premium-supported MAUs rising 11% to 263 million.
   • Average revenue per user (ARPU) increased by 7% to €4.85.
2. Gross Margin Improvement: Spotify's gross margin improved significantly, hitting 32.2% in Q4, a 113 basis point improvement from 31.1% in Q4 2023. This was due to several factors:
   • Audiobook surcharges and favorable content cost trends contributed to the margin improvement.
   • There was a 200 basis point sequential increase in ad-supported gross margins to 15.1%, and a 90 basis point rise in premium gross margins to 34.7%.
3. Operating Expense Management: Despite revenue growth, Spotify managed to decrease all operating expense items year-over-year. R&D, SM&D, and G&A decreased by 14%, 9%, and 18% respectively.
4. Strategic Partnerships and Market Expansion: Spotify's multi-year agreement with Warner Music Group enhanced its music and video catalog, which likely boosted investor confidence and supported revenue growth. The integration with Opera also expanded Spotify's reach and user engagement.

These factors combined to enable Spotify to not only increase its revenues but also to manage its costs effectively, leading to a significant improvement in net profit.