Contrary To Prior Reports, Apple Finally Overtakes Spotify In The US

In February 2018, The Wall Street Journal had predicted that Apple's (NASDAQ:AAPL) popular music-streaming service, Apple Music. would overtake rival Spotify (NYSE:SPOT) in the critical U.S. market over the summer. A few months later, Digital Music News reported that Apple had accomplished just that, citing an anonymous source at a "major distributor" that said Apple Music was "a hair ahead" of Spotify.

CEO Tim Cook even seemingly validated the report a few weeks later on an earnings call by saying, "It appears to us -- what we've been told is that [Apple Music] took the leadership position in North America during the quarter and we had leadership position in Japan." While the U.S. is just part of the North American market, it is the largest music market in the world and many investors interpreted Cook's comments as confirmation. It turns out that Apple only recently became the top dog in paid music streaming in the U.S.

Better Late Than Never

A fresh Wall Street Journal report this morning says Apple Music has finally overtaken Spotify in paid U.S. subscribers as of February. Apple Music had 28 million subscribers that month, compared to the 26 million subscribers Spotify had, according to the WSJ. Acknowledging its prior reporting, the Journal notes that Apple Music was expected to become No. 1 over six months ago, but Spotify was able to temporarily fend off the competition with a series of aggressive promotions.

"As we have previously discussed, Gross Margins are seasonally lower in Q1 and Q3 resulting from the costs of the major seasonal promotional campaigns we typically run in Q2 and Q4 each year," Spotify wrote in its November shareholder letter. "A majority of the expense of these promotional subscribers is absorbed following the quarter of intake onto the platform." The Swedish company also said in February that its fourth-quarter holiday promotion "outperformed our expectations for new subscriber additions," adding 7 million subscribers worldwide over six weeks.

Apple has been consistently adding more subscribers than Spotify each month, both in the U.S. and globally. The Mac maker's U.S. monthly growth rate is estimated at 2.6% to 3%, topping Spotify's 1.5% to 2%, according to the report. On a worldwide basis, Apple is adding subscribers at a rate of 2.4% to 2.8%, similarly above Spotify's 2% to 2.3%.

The confusion highlights shortfalls in disclosures. Spotify provides investors with more granular geographical detail with four segments: North America, Latin America, Europe, and Rest of World. Apple gives investors no such information, and only provides occasional updates on the Apple Music subscriber base, typically when it hits certain milestones instead of on a quarterly basis (such as in earnings releases).

Considering the fact that Apple Music is one of the company's most important services, and Apple wants investors to start treating it (and valuing it) like a services business, it should start reporting this metric on a more regular basis.

This article originally appeared in the Motley Fool.

Evan Niu, CFA owns shares of Apple and Spotify Technology. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: short January 2020 $155 calls on Apple and long January 2020 $150 calls on Apple. The Motley Fool has a disclosure policy.