SoundCloud‘s financial position is even more perilous than its biggest detractors may have thought.
New financial filings show that the Berlin-based streaming service lost €39.14m ($44.19m) in 2014 on revenues of just €17.35m ($19.37m).
The result means that in the three years from 2012-2014, SoundCloud lost almost €75m – but only brought in €37m in income.
It doesn’t take a genius to work out that any business whose losses far exceed its revenues won’t be long for this earth unless it makes some dramatic changes.
That’s exactly what SoundCloud is now trying to do, of course, with a long-mooted subscription service due for launch this year and an ad-funded tier, On SoundCloud, that first arrived in 2014.
The scariest stat from SoundCloud’s 2014 financials is its administrative expenses (staff and other business basics), which grew 67.8% to €47.74m in the year.
Despite such severe losses, SoundCloud’s headcount grew by 21% to 236 people in 2014.
Its total expenditure on wages & salaries jumped 42.5% to €17.9m.
As a result, its average annual wage per employee dropped slightly from €83,830 to €79,980 – still a very high figure compared to certain prominent rightsholders in the music business.
“Our overhead base has increased faster than our revenues,” acknowledges SoundCloud’s strategic report section of its 2014 financials.
SoundCloud has taken big investment on board in the past two years, and you can see why it was much needed.
In 2014 – the year these figures relate to – it accepted $60m in Series D funding from the likes of IVP and The Chernin Group.
It then raised a further $77m in funding in 2015.
“After making enquiries, the Directors have concluded that they have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the forseeable future,” says SoundCloud Ltd’s 2014 accounts, which were signed off last month.
“However, the Directors have concluded that there are material uncertainties facing the business.”
It adds: “The Group’s business plan shows that further capital investment will be required in the next 12 months to fund the business until it is forecast to become cash generative at an operating level.”
SoundCloud recently struck a landmark licensing deal with Universal Music Group, in which a single figure equity stake is believed to have been granted to UMG – who signed the deal on the proviso that SoundCloud will launch its subscription tier sooner rather than later.
UMG joins Warner Music Group and music publishers (via the NMP and PRS For Music) in licensing SoundCloud as it prepares for a brand new business model.
Looking at these numbers – and considering the fact that SoundCloud tried, and failed, to sell itself to Twitter for $1bn in 2014 – some may suggest that business model looks less like a carefully-planned new strategy, and more like a last roll of the dice.
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