Despite reporting its best-ever quarter for new users, Spotify Technology stock fell by 10% in premarket trading on Tuesday. The popular music streaming platform experienced a widening of losses in the second quarter and fell short of revenue estimates.
Impressive User Growth
Financial Performance
Unfortunately, these positive user growth statistics were overshadowed by the company’s financial results. Spotify reported a net loss of €302 million ($334 million), or €1.55 ($1.71) per share, in comparison to an €85 million (85 European cents) loss in the same period last year. Analysts had expected a loss of 63 European cents. Additionally, the company’s revenue of $3.18 million narrowly missed the estimate of €3.21 billion.
Operating losses also widened, reaching €247 million compared to €194 million in the second quarter of the previous year. This increase was primarily attributed to higher music royalty costs, although there was some improvement in podcast profitability.
Factors Affecting Margins
Spotify’s gross margin experienced a decline of 47 basis points, falling to 24.1%. This decrease was partly due to a €44 million charge related to the cancellation of several podcast shows and the impairment of excess real estate.
Market Reaction
The stock had already experienced a decline of 4.7% on Monday when Spotify raised the monthly subscription price for its premium service. In premarket trading on Tuesday, shares were pointing towards a further 9% drop.
In conclusion, despite Spotify’s impressive user growth, the market’s reaction to the widening losses and missed revenue estimates has resulted in a significant decline in the company’s stock price.
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