Spotify's Temporary Growth Spurt

Spotify released their latest subscriber numbers yesterday, announcing they have 15 million paying subscribers (up from 12.5 million in November), and 60 million total users (up from 50 million). 

I have updated all of my Spotify models, and below is my latest chart showing user growth.

Spotify Growth

While month over month growth rates seem to have increased (temporarily), the new subscriber data is likely an outlier. By outlier, I mean these rates shouldn't be used to make stable projections of future Spotify growth. Let me explain why. 

In December, the company held a promotion that let users sign up for a three-month Spotify Premium subscription for $0.99, instead of paying $9.99 per month. Great deal, right?

Right. But how many of those users who signed up for this promotion will actually stay with the service after the three months are up? My guess is 15-25% (25% is the current paying-to-free user ratio, and 15% is the more realistic rate, since users who signed up for this promotion are less likely to keep the subscription active). 

In addition, December is the holiday month, so it's very likely Spotify gift cards and subscriptions were gifted by friends and family. This further inflated the latest Spotify figures. 

It's never a good sign when companies inflate their numbers to proclaim better than expected results, but you will be hard-pressed to find companies that abstain from this practice. Especially in the world of startups. Fortunately for us, Spotify's number-inflation was easy to spot (sorry, I had to). Unfortunately for Spotify, it was caught.