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Spotify stock plunges after reporting earnings for the first time

  • Spotify reported its first quarterly earnings as a public company.
  • The company posted a total user base of 170 million, with 75 million paid subscribers, in line with expectations.
  • But the company is still losing money, and also gave guidance for the current quarter that was slightly lighter than estimates.

Spotify shares fell nearly 8 percent in extended trading Wednesday when it reported its first quarterly earnings as a public company and gave a disappointing outlook for revenue growth.

Spotify gave guidance for the current quarter that was slightly lighter than estimates. Investors in young tech companies like Spotify tend to have an appetite for growth, and Spotify's could slow next quarter. That's especially important since the company is still losing money, as it invests in research and development staffers, which made up almost half of new hires during the quarter.

The company posted a total user base of 170 million, with 75 million paid subscribers, in line with expectations.

Here's how the company did (currency rates from Oanda):

  • Revenue in line: 1.14 billion euros ($1.37 billion) vs. 1.14 billion euros ($1.37 billion) expected by Thomson Reuters
  • Paid subscribers in line: 75 million vs. 75.1 million expected by a FactSet consensus estimate
  • Ad-supported monthly active users, slight beat: 99 million vs. 98 million expected by a FactSet consensus estimate

Spotify reported a net loss of 169 million euros, narrower than the 173 million reported a year ago. Per share figures weren't immediately comparable to analyst expectations.

A year ago, Spotify reported revenue of 902 million euros (worth $1.09 billion as of Wednesday).

Guidance for the current quarter:

  • Revenue: 1.1 billion euros to 1.3 billion euros ($1.32 billion to $1.56 billion) vs. 1.29 billion euros ($1.55 billion) midpoint expected by a Thomson Reuters consensus estimate
  • Subscribers: 79 to 83 million vs. 82.1 million expected by a FactSet estimate

After a successful — unconventional — IPO, Spotify stares down Apple

Some of the numbers weren't a big surprise, given the company's financial forecast in March, when the company said it expects to hit as many as 96 million subscribers this year. Spotify maintained its outlook for the year on Wednesday, saying it plans to lose up to 330 million euros this year (about $397 million at Wednesday's exchange rate).

But Spotify faces steep expectations for rapid growth, given formidable competition from rivals like Apple and Amazon.

And the company forecast year-over-year growth of 10 percent to 29 percent in the current quarter, which is not a big jump from the 26 percent growth rate it hit during the first three months of the year (some of that can be blamed on foreign exchange rates).

CEO Daniel Ek told analysts on a conference call that he maintained the company's long-term growth plan, including around its "freemium" upgrade program, which boosts user engagement and allows the company to get additional data points for its music personalization services. Executives said they anticipate being in "fast growth mode" for a while, as the company prioritizes market share above profit margins.

In addition to research and development staff, Spotify has invested in several new initiatives, including expansion into Asia and Africa, a new advertising platform, and a new free app. It has also expanded its reach in the podcast market.

Executives said the goal is to make the music industry more efficient and take advantage as radio listeners move online and more people get access to 4G mobile internet.

Deals like family plans and student plans have been a source of strength, reducing the rate that people leave the platform, Spotify said. In that vein, Spotify recently announced a new bundle with video service Hulu. Executives said that price increases aren't a focus for Spotify in the near term, and that desktop advertising is the slowest growth area.

Spotify posted a solid public offering last month, despite the unconventional process, where no banks underwrote the offering and no price was set ahead of the debut.

Rival Apple Music also said last month that it had 40 million paid subscribers, hinting at its fast growth. Last June Apple Music had 27 million paid subscribers, and a year ago Spotify said it had more than 50 million subscribers.

Spotify has emphasized its wide availability — free memberships, compatibility with multiple operating systems and smart speakers — as a competitive advantage. Some analysts have compared Spotify to Netflix, which pays a lot for content but has achieved long-term success.

Spotify executives said there hasn't been meaningful impact from the competition, and that music streaming is not a "winner-take-all" market. The company also said it's not threatened by smart speakers from companies like Amazon, Apple and Google, which also have competing streaming services.

"We believe we're only in the second inning of the Spotify journey," Ek said. "I look forward to sharing our future growth in upcoming quarters."