Spotify Stock Plummets 11% After Earnings Miss

Spotify, the leading music streaming platform, experienced a significant drop in its stock price on Tuesday, falling by more than 11%. This decline marked the company's largest single-day drop since July 2023. The downturn came after Spotify released its second-quarter earnings report, which fell short of market expectations. The company reported revenue of 41.9 billion euros for the second quarter, a 10% increase year-over-year, but this figure fell short of the market's expectation of 42.6 billion euros. Additionally, the company reported a net loss of 86 million euros, compared to a net profit of 2.25 billion euros in the same period last year. The earnings per share were reported at a loss of 0.42 euros, significantly below the market's expectation of 1.90 euros in earnings per share.

Spotify attributed the disappointing results to increased costs in personnel, marketing, and professional services, as well as a social cost of 1.15 billion euros. The company also provided guidance for the third quarter, forecasting revenue of 42 billion euros, which is below the market's expectation of 44.7 billion euros. Spotify noted that this forecast takes into account a 490 basis point unfavorable impact from currency fluctuations.

The company's user base showed growth, with monthly active users increasing by 11% to 696 million, and paying subscribers growing by 12% year-over-year to 276 million. Over 60% of Spotify's monthly active users are subscribed to its ad-supported plan. For the third quarter, Spotify expects to reach 710 million monthly active users, with a net addition of 14 million users. The company also anticipates adding 5 million new paying subscribers, bringing the total to 281 million.

Spotify's advertising revenue decreased by approximately 1% to 4.53 billion euros. Despite this, the company expressed optimism about its advertising portfolio and demand outlook, planning to focus on promotion and new tools in the second half of the year. Areas with growth potential include commercial advertising and automated advertising.

During the earnings call, CEO Daniel Ek acknowledged the challenges but remained confident in the company's long-term goals. He stated that the issues were related to execution rather than strategy, and that the company is taking swift action to address them. Ek also highlighted encouraging signs in Spotify's programmatic business. The company aims to achieve its first full-year profit in 2024 through cost-cutting measures and price increases. Over the years, Spotify has prioritized user growth and invested in areas beyond music, such as podcasts and audiobooks, with Apple Music remaining a key competitor.

As of the second quarter, Spotify's full-time employee count exceeded 7,300, and the company increased its stock buyback program by 10 billion euros. Despite the recent setbacks, Spotify's stock has seen a rise of over 40% year-to-date. The company's strategic focus on user experience, content expansion, and new revenue streams will be crucial in navigating the current challenges and regaining investor confidence. The market's reaction to Spotify's earnings report highlights the importance of meeting or exceeding market expectations in the highly competitive streaming industry.