Spotify added millions of users. Here’s why the stock is getting hammered

Spotify’s subscriber numbers are surging. However its share worth just isn’t.

Spotify’s inventory on Tuesday plummeted 14% to shut at $140.38 a share as the corporate issued weaker income steering than Wall Avenue analysts anticipated.

The Swedish audio firm added 10 million subscribers through the second quarter to hit a complete of 220 million paying customers, up 17% from a yr earlier. Month-to-month energetic customers — which incorporates subscribers and individuals who use the free ad-supported model — reached 551 million, up 27%. That was the very best quarterly consumer development in its historical past.

Income was $3.5 billion, up 11%, within the second quarter.

Nonetheless, the quarter was not worthwhile. Spotify reported a web lack of about $333 million in contrast with $138 million a yr earlier. Among the web loss was attributable to costs associated to restructuring efforts.

“In my view, the inventory ought to be doing higher than anticipated, given their outcomes,” stated Ray Wang, principal analyst at analysis and advisory agency Constellation Analysis. “They’ve proven they’ll develop … however the market isn’t positive that consumers pays for the premium subscription providing.”

Buyers reacted negatively to Spotify’s outlook. The corporate stated within the third quarter it expects gross sales to be $3.6 billion. Analysts had anticipated the corporate to venture $3.78 billion, in line with FactSet.

Daniel Ives, a managing director of fairness analysis at Wedbush Securities, stated he thought it was clever for Spotify to situation that steering in a uneven macroeconomic surroundings and because the firm imposes worth hikes. Spotify on Monday introduced plans to lift costs in additional than 50 international locations. Within the U.S., Spotify’s month-to-month particular person premium plan will go up $1 to $10.99 a month.

“The corporate goes by a serious transformation with the worth will increase on the best way, which we view as a wise poker transfer regardless of some near-term potential churn,” Ives stated.

Spotify, as soon as identified solely as a music streaming firm, has expanded its choices in recent times to incorporate podcasts and audio books. However like different tech corporations, Spotify has centered on decreasing its bills, together with shedding a whole bunch of employees amid a difficult financial time.

The corporate has additionally restructured its podcasting division and opted to not renew costly expertise offers with some podcast companions, together with Meghan Markle and Prince Harry’s audio firm, Archewell Audio.

Daniel Ek, Spotify’s chief government, known as the earnings outcomes “a really robust quarter.”

“We beat our personal expectations once more, throughout each [monthly active users] and subs,” Ek stated in an earnings name Tuesday. “As well as, it’s actually gratifying to see the outperformance and development that continues to return from markets all around the world.”

Ek admitted that the corporate “in all probability bought somewhat forward of ourselves” with a few of its investments.

He added that the corporate has much more knowledge concerning podcasts and is “doubling down and renewing the issues that did work and cease doing the issues that didn’t work.”

Netflix, which launched its earnings final week, additionally noticed a dip in its inventory worth after its third-quarter steering didn’t match some analysts’ expectations. Netflix added 5.9 million subscribers through the quarter.