Streaming music service provider Spotify AB has announced that it now has 100 million active users despite increasing competition from the likes Apple Music.

The company told The Telegraph that its user numbers were increasing at the rate of 1.3 million users a month, however, most of those users are only signing up to the free ad-supported service, with only 30 percent of its user base paying for a monthly ad-free service.

According to the same report, the streaming media service has also now become the biggest European startup around with investment bank GP Bullhound saying Spotify in now worth $8.5 billion.

The figure of 100 million active Spotify users with approximately 30 million paying subscribers is up from 75 million and 20 million respectively in June 2015; rival Apple Music is believed to have around 13 million paying subscribers as of April this year.

Problems

While Spotify is the world’s most popular music streaming service, the new figures, despite showing growth, emphasize underlying problems with Spotify’s business model.

Firstly the new figures would indicate that growth in paid subscriptions, the main source of revenue for Spotify, is either close to or at zero percent; Spotify revealed in March that it had 30 million paying subscribers, but if today it says its 100 million users with 30 percent on the subscription tier it means that there has been no subscriber growth in the last three months.

Spotify’s financials, which are primarily supported by paying subscribers, are also struggling, with the company saying in a filing that, while it brought in $2.18 billion in revenue in 2015 (up from $1.3 billion in 2014), its loss for the year grew to $173.1 million.

Paying subscribers accounted for $1.96 billion in revenue in that period; if the number of paid subscribers is not increasing, neither is Spotify’s revenue, which means it has a problem in not only addressing its growing losses going forward, but even eventually one day becoming profitable.

In the face of the challenge from Apple Music, Spotify is attempting to find new ways to drive growth, including the release of competitive family plans and the addition of video content, but whether this alone is enough to drive growth in paid subscribers is yet to be seen.

What is clear is that while Spotify may have raised $1.56 billion to date in venture capital funding, time is ticking on it to make the business profitable because at an annual burn rate approaching $200 million that money will not last forever.

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