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Spotify Shares Dive 11%, Market Slams First Earnings Report

Shares in Spotify have tumbled 11% [in extended trade] after the newly listed company posted its first quarterly earnings report which came below investors’ expectations.

Prior to posting its Q1 earnings report, the Swedish streaming giant was valued at ~$30 billion, despite never having turned a profit.

Despite meeting several targets, Wall Street investors expressed their disappointment with the results, a response some analysts claim is exaggerated.

For Q1, Spotify notched a 26% YoY increase in revenue to 1.139 billion euros (US$1.36 billion).

Revenue aligned with Spotify’s previous guidance of 1.1 billion euros – 1.15 billion euros, however, fell below Reuters analyst expectations for 1.143 billion euro.

James Cordwell, Atlantic Equities analyst, informed Reuters investors were clearly “hoping for a little more”:

“Results and guidance are pretty much exactly in line with expectations, but the stock reaction clearly suggests investors were hoping for a little more”.

The Swedish streaming giant posted a Q1 operating loss of 41 million euros – a notable improvement from the 139 million euro loss a year prior.

Average revenue per user for Q1 fell to 4.72 euros, versus 6.84 euros back in 2015.

Q1 gross margins notched 24.9%.

Advertising revenue from free subscriptions plans jumped 38% YoY to 102 million euros. The result is reportedly a tenth of what Spotify generates from paid subscribers.

Total paid subscribers jumped 4 million from the end of 2017 to 75 million – a 45% YoY increase.

The result exceeded Reuters analysts expectations for 74.43 million.

As at March 31st, Spotify states it has 170 million active monthly users – a 30% YoY increase.

The result allows Spotify to remain ahead of rival Apple Music, who boasts ~40 million paid subscribers.

Amazon Music has not provided exact subscriber numbers, however, affirms subscriptions grew over 100% within the last six months to “tens of millions of paid customers”.

Concerning Q2 outlook, the streaming giant projects paid subscribers between 79 million – 83 million. Thomas Reuters analysts had forecast ~81 million.

Spotify expects Q2 revenue to be between 1.1 billion euros – 1.3 billion euros, a notable 10% – 20% YoY increase [including currency effects].

Gross margins are expected to remain between 24% – 26%.

Analysts have also expressed concern over Spotify’s marketing promotions and the impact on profit – e.g. discounted paid subscriptions and extended free-trial plans.

Spotify has kept its full year 2018 outlook unchanged. Monthly active users is forecast to hit between 198 million – 208 million.

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