In its first quarterly report since becoming a public company, Spotify had disappointing news: a loss that came in much bigger than expected.
Investors sold the stock on the news. In recent after-hours trading, shares in the streaming music company were down , to $
The streaming music company's number of paying subscribers grew to 75 million during the first three months of the year, in line with expectations and maintaining Spotify's lead in a heated battle with Apple Music, which has 40 million paying subscribers.
But diminishing revenue-per-user, as Spotify races to boost its membership through discounted family and student plans, took a toll.
Spotify announced its first-quarter results after Wednesday's closing bell. The report follows its unorthodox "direct" initial public offering last month.
Here's what the company reported and how those results compared with Wall Street expectations and its prior results.
- EPS (GAAP):
- Net loss:
- Monthly Active Users
- Premium subscribers:
- Revenue guidance:
- Operating loss guidance:
The Luxembourg-based company's results were weighed down by a sequential decline in advertising revenue and slow growth in subscription revenue. Spotify saw €102 million in revenue from its ad-supported offering in the first period, which was down 22% from the fourth quarter.
Interestingly, although the total number of premium subscribers grew 7% from Q4, the revenue from subscriptions only grew 2% sequentially, to $1.04 billion. The disparity may owe to the company's popular family plans, which help Spotify increase its user base but bring in less revenue per subscriber.
Spotify did show improvement on its costs, though. Its gross profit margin, which represents the portion of its revenue it has left after paying the direct costs of providing its services, came in at 24.9% for the quarter. That was up from 24.5% in the fourth quarter and 11.7% in the year-ago period.
Many analysts and investors have bet that Spotify will become a significantly profitable company in the future and are betting that one way it will improve its bottom line is by increasing its gross margins.
But the company also kept its operating costs in line. It had €324 million in operating expenses in the period, which was down from €369 million in the fourth quarter. A big cut in marketing expenses helped the company lower its overall costs.