Spotify hits the right notes but misses paid subscriber targets

Spotify’s lighter-than-expected number of new paid subscribers drove shares as much as 5 per cent lower in trading before the bell, overshadowing revenue, gross margins and user engagement successes in the second quarter.

The reaction to what appeared to be one slight disappointment in an otherwise rosy quarter underscored just how dependent on growth companies such as Spotify and Netflix are in preserving market value.

The world’s most popular paid music streaming service said premium subscribers rose 30 per cent from a year earlier to 108 million, but missed analysts’ expectation of 108.5 million.

"We missed on subs. That's on us," Spotify chief executive Daniel Ek said, referring to subscribers in a shareholders' note on Wednesday. He said the company expected to "make up lost ground before year-end".

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"The issue is that they missed on paid subs, which is probably the most important number for the company," said analyst James Cordwell of Atlantic Equities.

Revenue from premium subscribers, which accounted for nearly 90 per cent of its overall revenue, rose to €1.5 billion in the second quarter.

Resistance

Since launching its service more than a decade ago, Spotify has overcome resistance from big record labels and some major music artists to transform how people listen to music and become a global leader in music streaming.

It still faces competition from Apple Inc, which trails Spotify with more than 60 million subscribers as of June

To fuel its next stage of growth, Spotify launched its service in South Africa, the Middle East and India in recent months even as it continues to price aggressively in the developed world.

It still faces competition from Apple Inc, which trails Spotify with more than 60 million subscribers as of June.

On a morning conference call with analysts, Ek said Spotify delivered 31 per cent year-over-year subscriber growth, “which we believe is roughly twice the rate of growth of our next-closest competitor.”

Active users

Spotify’s monthly active users, which included its ad-supported free version, grew 29 per cent to 232 million and beat expectation of 227.7 million users.

It now expects between 240 million and 245 million monthly active users in the third quarter. Analysts were expecting to end the current quarter with 242 million users.

Revenue rose to €1.67 billion for the three months ended June 30th, from €1.27 billion a year earlier.

Net loss attributable to the company narrowed to €76 million from €394 million a year earlier.

– Reuters