Spotify Stock Falls Despite Record User Growth

Woman using headphones to listen to phone.

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Spotify, the world’s largest music streaming platform by number of subscribers, reported record user growth in its second quarter ended June 30, 2023, but its stock fell by more than 10%.

The company delivered a 27% year-over-year increase in monthly active users (MAUs) to 551 million, an 11% year-over-year increase in revenue to €3.18 billion, but a net loss of €302 million compared with a net loss of €125 million in the year-ago period.

While MAUs came in above expectations, the revenue and net loss figures came in weaker-than-expected, so its stock tumbled in response.

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The company said its recently announced price increase for Spotify Premium “will help us continue to deliver value to fans and artists on our platform." But the move came after the end of the quarter.

On a conference call discussing the quarterly results, Spotify CFO Paul Vogel said the price increase will have a “minimal impact” on third-quarter results, due in large part to the one-month grace period for the new pricing, but that investors will see “the full benefit” of the move in the fourth quarter.

Investors want profits now

“At the end of the day, this is a different market and investors are valuing profitable growth more than anything,” said Tejas Dessai, associate vice president and research analyst at ETF firm Global X. “Spotify is a category leader, yet it continues to lose money, chasing growth at all costs, while its competitors are getting stronger.”

Spotify’s miss on revenue may be attributed to the fact that, of the 36 million net new users, only 10 million were premium subscribers while the remainder were ad-supported users. This may explains why Spotify’s average revenue per user was down 6% year-over-year.

Dessai said he does not see Spotify topping revenue growth expectations anytime soon. “Spotify is running out of levers that would indicate a different outcome in the near term,” he said. “The company has already fully invested in podcasts and original content, diversified beyond subscriptions with ads, and has access to an extensive content library. So, in terms of what might drive top-line growth faster than the market expects, we see few levers at their disposal.”

The company said its net loss widened from the year-ago period as a result of its actions to streamline operations and reduce costs, which it expects will improve profitability in the future.

Dessai said that investors want profitable growth now, however.

For its third quarter ending September 30, 2023, the company said it anticipates MAUs of 572 million and revenue of approximately €3.3 billion, which would represent year-over-year increases of 25.4% and 8.7%, respectively.

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.