Daniel Ek, CEO and Founder of Spotify
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Spotify shares dropped more than 8% before the bell Tuesday after the music streaming service fell short of Wall Street’s expectations and posted weak guidance for the current quarter.
Here’s how the company did versus LSEG estimates:
- Loss: Loss of .42 euros vs earnings of 1.90 euros per share expected
- Revenue: 4.19 billion euros vs. 4.26 billion expected
The Swedish platform’s revenues rose 10% from about 3.81 billion euros in the year-ago period. The company posted a net loss of 86 million euros, or a loss of .42 euros per share, down from net income of 225 million euros, or 1.10 euros per share a year ago.
Spotify said that higher personnel, marketing and professional services costs and 115 million euros worth of what it called social charges contributed to the results.
Third-quarter guidance came up short of Wall Street’s forecast.
The company expects revenues to reach 4.2 billion euros, compared to a 4.47 billion euro estimate from StreetAccount. Spotify said the forecast accounts for a 490-basis-point headwind due to foreign exchange rates.
Monthly active users on the platform jumped 11% to 696 million, while paying subscribers rose 12% from a year ago to 276 million.
For the current quarter, Spotify said it expects to reach 710 million monthly active users, with 14 million net adds. The company expects 5 million net new premium subscribers in the third quarter to reach 281 million subscriptions.
During the period, Spotify said it rolled out a request feature for its artificial intelligence DJ. The company said engagement with the offering has roughly doubled over the last year. Its audiobooks feature expanded to four new countries during the quarter.
Earlier this year, an indie rock band on the platform known as Velvet Sundown gained media attention after it quickly captured over a million new listeners and raised questions over artificial intelligence use in music creation. The “band” was later confirmed to be mainly AI-generated after widespread speculation.
Spotify’s advertising-supported revenues declined about 1% to 453 million euros from 456 million euros a year ago. The company sees promise in its advertising stack and demand given its strong user base and said it will focus on adoption and new tools in the second half. Some areas of opportunity include business and automated ads.
“It’s really an execution challenge, not a problem with the strategy,” said CEO Daniel Ek during an earnings call. “While I’m unhappy with where we are today, I remain confident in the ambitions we laid out for this business, and we’re working quickly to ensure we’re on the right path.”
Ek said the company is seeing some “promising signs” in its programmatic business.
In 2024, Spotify posted its first full year of profitability as it reduced costs and focused on subscriber gains. Spotify said it ended the quarter with more than 7,300 full-time employees. Shares are up 57% this year.
Spotify also upped its share repurchase program by $1 billion.