Spotify Subscribers Grow to 268 Million Even as Streaming Firm Misses Quarterly Estimates

Spotify Technology SA shares tumbled in early trading Tuesday after the streaming company reported operating profit that missed estimates even as it saw a surge in subscribers in the first quarter. 

Operating income of EUR 509 million (roughly. Rs. 4,936 crore) came in below Spotify's forecast for EUR 548 million (roughly Rs. 5,316 crore), according to a statement Tuesday from the Stockholm-based company. Spotify said the figure was weighed down by more than EUR 76 million (roughly Rs. 737 crore) in social charges, which it has defined as payroll taxes associated with employee salaries and benefits. The company said those charges were higher than expected due to the share price appreciation in the quarter. 

The US-traded stock slipped more than eight percent in premarket trading in New York. It had risen 22 percent this year through the end of March and has more than doubled in the last 12 months.

The profit miss overshadowed a stronger gain in subscribers in the first three months of the year, showing that the streaming service's strategy of expanding beyond music into audiobooks and podcasts is luring more fans even as it raises prices.

 “The short term may bring some noise, but we remain confident in the long-term story, and the direction we're heading in feels clearer than ever,” Chief Executive Officer Daniel Ek said in the statement.

The company reported a 12 percent increase in subscribers to 268 million, ahead of both Spotify and analysts' projections for about 265.2 million. Revenue, at EUR 4.2 billion ($4.8 billion or roughly Rs. 40,734 crore), matched Spotify's guidance and analysts' estimates. 

Monthly active users increased 10 percent to 678 million, slightly below analysts' expectations for 679 million. In the current quarter, Spotify projected 689 million monthly active users, compared with the 694.5 million analysts were expecting, according to data compiled by Bloomberg.

“Despite the overall uncertainty, the competitive moat is deepening and the long-term outlook is positive with several levers like potential price increases, a new superfan tier, a bigger ad push and new features like video podcasts,” Bloomberg Intelligence analyst Geetha Ranganathan wrote in a note following the results.

Ek has been re-investing in Spotify's growth, adding audiobooks and podcasts and recently making a push into video content to compete with YouTube. In January, Spotify launched a new partner program that compensates creators based on how much content paying subscribers consume, rather than through advertisements. Since the start of the year, it has paid $100 million (roughly Rs. 852 crore) to podcast publishers and creators, through that program and ads Spotify places in their shows.

The expansion into new formats dovetails with Spotify's focus on raising prices and increasing profitability. The company raised prices for several key markets last year — individual US subscribers pay $12 (roughly Rs. 1,022) a month — and is reportedly planning to hike prices in Europe and Latin America this year, the Financial Times reported. 

After several years of expansion in the music industry, growth has begun to slow. Record labels have been on the hunt for new ways to profit from their artists by offering hard-core fans exclusive access to stars and other features. Spotify has been working on a significantly more expensive “Music Pro” tier that will include higher fidelity audio and other perks, though it has yet to formally launch that offering.

For this year's second quarter, Spotify forecast 273 million subscribers and operating income of  EUR 539 million (roughly Rs. 5,227 crore). 

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