SoundCloud Warns It May Have to Raise More Money This Year

Online music company SoundCloud Ltd. warned that if a music subscription service it introduced last year doesn’t gain traction with customers it risks running out of money.

In a regulatory filing published in the U.K. this week, SoundCloud said that while it believes it has enough funds to make it through 2017, if the subscription service doesn’t take off it may raise "material uncertainty" about the company’s "ability to continue as a going concern," the filing said. SoundCloud said it may have to raise additional funds to meet its financial obligations.

Underpinning the challenge is SoundCloud’s release last year of a $9.99 per month subscription service, an attempt to better compete against larger rivals Spotify Ltd. and Apple Inc. The service’s debut was delayed for about two years due to a lack of licensing agreements with the world’s biggest record labels and adoption has been muted since it launched in March. The subscription is available in the U.S., U.K. and Germany. Music industry analyst Mark Mulligan estimates SoundCloud has roughly 250,000 subscribers for the service, compared with more than 40 million for Spotify and 20 million for Apple.

“The launch of a new subscription services bears financial risks regarding the operating results and cash flows of the group,” SoundCloud said in the regulatory filing signed by Chief Executive Officer Alexander Ljung. “The occurrence of these risks can seriously affect the ability of the group to generate sufficient cash to cover the planned expenditures and could require the group to raise additional funds which have not yet been agreed.”

SoundCloud has explored a sale of the company, including having talks with Spotify that recently stalled, according to a person familiar with the discussions.

In a statement Thursday, SoundCloud said it’s experiencing strong growth from subscriptions and advertising.

"We are on a very positive path to achieving our aim of enabling all creators to be paid for their work, while also building a financially sustainable platform where our connected community of creators, listeners and curators can continue to thrive," the company said.

Since its founding in 2007, SoundCloud has attracted 175 million users with more than 135 million tracks of easy-to-share remixes, podcasts and other user-generated content. It also has songs from mainstream artists. It’s especially popular among fans of electronic dance music, who use the service to find the mixes from DJs. The challenge has been turning that user base into a profitable business.

In the regulatory filing, SoundCloud also released financial results for 2015. Losses grew 24 percent to 45.6 million euros, the company said. Revenue rose 22 percent to 21.1 million euros.

— With assistance by Jeremy Kahn