Spotify Technology SA (NYSE:SPOT) Announces Its Financial Results For Q1 2018

Music streaming platform Spotify Technology SA (NYSE:SPOT) has announced its first financial earnings after going public but the results for the first quarter of 2018 were less than stellar and resulted in the stock taking a dive.

The announcement of the company’s financial performance was a key moment for Spotify’s investors because it was the first time that the firm was announcing its financial results after it was listed publicly. Unfortunately, the results were not as appealing as investors had expected and the disappointing outlook on the company’s revenue growth.

The company’s revenue guidance was lower than the estimates provided by analysts and this resulted in a slump in Spotify’s stock after the announcement of the results. This is contrary to the norm where young tech firms usually set the bar high as they expect more growth. However, Spotify’s outlook suggests that growth in Q2 might slow down. This outlook might have something to do with the fact that the company has been making losses.

Spotify reported that it had $75 million paying subscribers and a total of 170 million subscribers and these figures were within the expectations. Its Q1 revenue of 1.14 billion euros ($1.37 billion) was also spot on with the revenue expectation of 1.14 billion euros by Thomson Reuters. Its ad-supported figure for monthly active users was 99 million which was slightly higher than the 98 million consensus estimate by FactSet.

Spotify reported a net loss for the quarter at 169 million euros but this figure represents a year-over-year improvement compared to the net loss of 173 million euros that the company reported in Q1 of 2017. The net loss has been attributed to the heavy spending in hiring new skills for its Research and Development division. Most of the new appointments in Q1 were made in Q1. The firm’s shares dropped almost by 8 percent following the announcement of the quarterly earnings.

The company set its subscriber estimate between 79 million and 83 million while FactSet estimates the subscriber count at around 82.1 million. Spotify revealed its revenue estimates between 1.1 billion euros ($1.32 billion) and 1.3 billion euros ($1.56 billion). These estimates are significantly lower than the 1.29 billion euros ($1.55 billion) midpoint consensus estimate provided Thomson Reuters.

Daniel Ek, the CEO of Spotify told analysts during the earnings conference that the company has maintained its long-term growth plan which includes its “freemium” upgrade program. The latter was part of the company’s plan to encourage more user engagement, thus allowing it to gain more data points for its personalized music services.

Spotify is currently focusing on prioritizing market share rather than focusing on profit margins and its executives claim that they expect rapid growth mode for some time. The company is also investing in various new initiatives such as expanding its music service to Asia and Africa. It also plans to introduce a new free app, a new advertising platform and also to expand its research in podcasts. Spotify executives claim that it is all part the company’s mission of making the music industry more efficient.