Spotify's (SPOT -1.42%) stock recently stumbled amid concerns about two rising competitors in the streaming music space. First, Financial Times claimed that ByteDance -- the Chinese start-up that owns the popular social media app TikTok -- would launch a new streaming music app as early as next month.
Amazon (AMZN 1.21%) then announced that it would expand its free ad-supported music streaming service, which was previously only available on Echo and Alexa devices, to its Amazon Music app on iOS, Android, FireTV, and web browsers. Should Spotify investors be worried about these two new developments?

Image source: Getty Images.
Reviewing Spotify's growth
Spotify's total MAUs (monthly active users) rose 30% annually to 248 million last quarter, as its total revenue grew 28% to 1.73 billion euros ($1.92 billion). Those two growth metrics remained surprisingly consistent over the past year, even as competitors like Apple (AAPL 0.48%) Music gained more listeners.
YOY growth |
Q3 2018 |
Q4 2018 |
Q1 2019 |
Q2 2019 |
Q3 2019 |
---|---|---|---|---|---|
MAUs |
28% |
29% |
26% |
29% |
30% |
Revenue |
31% |
30% |
33% |
31% |
28% |
YOY = Year-over-year. Source: Spotify quarterly earnings.
Of its MAUs, 46% were paid premium subscribers last quarter, and that ratio was nearly unchanged from a year earlier. The rest of its MAUs are free ad-supported listeners. Roughly 90% of its revenue came from subscriptions, and the remaining 10% came from ads.
Spotify's dependence on higher-margin subscriptions over lower-margin ads enabled it to squeeze out a quarterly net profit of 241 million euros ($267 million), but it still hasn't reported a full year of profits yet.
Is ByteDance a growing threat?
ByteDance's TikTok topped 500 million MAUs last year. The app, which lets users post short videos of themselves dancing or lip-syncing to songs, is particularly popular with Gen Z users.
ByteDance also owns other popular apps like the news aggregator Toutiao, the mobile messaging app Flipchat, the video chat service Duoshan, and the enterprise collaboration platform Lark. Earlier this year, it revealed that it served over 1.5 billion MAUs and 700 million DAUs (daily active users) across all its apps.
ByteDance is reportedly in talks with the big three record labels -- Universal, Sony, and Warner -- to secure licensing deals for its new music streaming app. It will initially launch the app in several emerging markets -- including India, Indonesia, and Brazil -- before launching in the United States.
The FT report claims that ByteDance will launch its service at a lower price than Spotify's monthly fee of $10 in the U.S. ByteDance will likely leverage TikTok's popularity to launch its new music streaming service -- but some TikTok users could already be Spotify users.

Image source: Getty Images.
What's Amazon up to?
Amazon doesn't regularly disclose its number of streaming music listeners. However, a Financial Times report in July claimed that its Amazon Music Unlimited subscriber base grew 70% annually over the past year, and that it had 32 million subscribers across all its music platforms -- including Unlimited and Prime Music. That growth rate indicates that it's gradually gaining ground against Spotify and Apple Music, which topped 60 million subscribers earlier this year.
Amazon Music Unlimited, which offers ad-free streaming, costs the same as Spotify and Apple Music at $10 a month. However, Amazon Prime members can access the service for just $8 a month, while subscribers who only listen on Echo devices pay just $4 a month. It's also currently offering Prime members a four-month promotional offer for $0.99 a month.
Amazon's recent expansion of the free ad-supported version beyond Echo devices -- which will start in the U.S., U.K., and Germany -- means that its streaming service now reaches just as many platforms as Spotify. This move might not lure away Spotify's free listeners, but it could make it more difficult for it to gain new listeners.
Spotify investors shouldn't panic yet
Spotify enjoys a first mover's advantage in the streaming music space, and it's continued growing amid rising competition from Apple Music, Amazon Music, and Sirius XM's Pandora. Its MAUs and revenue are still consistently rising, and its profitability is improving -- so investors shouldn't panic and sell the stock on the recent news about ByteDance and Amazon. Instead, they should monitor those efforts and see if they actually impact Spotify's growth before jumping to conclusions.