Spotify's stock dropped more than 13% after the market opened on Tuesday, following the release of its first-quarter earnings report. Despite beating expectations with an 8% year-on-year revenue increase to 4.5 billion euros ($5.3 billion) and a 12% rise in monthly active users (MAUs) to 761 million, investor sentiment turned negative due to disappointing forward guidance. Premium subscribers grew 9% to 293 million, with 3 million net adds in the quarter, according to Spotify [1].
For the current quarter, Spotify projects adding 17 million net users to reach 778 million MAUs and expects premium subscribers to grow by 6 million to 299 million. While the MAU guidance was slightly above Wall Street's expectations, analysts had anticipated premium subscribers would surpass 300.4 million, based on FactSet estimates [1].
Spotify's earnings presentation noted that the guidance is 'subject to substantial uncertainty.' The company forecasted operating income of 630 million euros for the next quarter, which is below the approximately 680 million euros expected by analysts polled by FactSet [1].
To improve profitability, Spotify has implemented several price hikes for its premium subscription, most recently raising the U.S. price from $11.99 to $12.99 per month in February. Despite these efforts, the stock was already down 14% year-to-date as of Monday's close [1].
CONCLUSION
Spotify's better-than-expected first-quarter results were overshadowed by cautious guidance for subscriber growth and operating income, leading to a sharp sell-off in its shares. The market reacted negatively to the company's outlook, reflecting concerns about its ability to meet profitability and growth targets despite recent price increases.