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Why Spotify Technology Shares Tanked Today

By Evan Niu, CFA - May 3, 2018 at 1:23PM

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Guidance for the second quarter fell short, but the Swedish company reaffirmed its full-year forecast.

What happened

Shares of Spotify Technology (SPOT -0.73%) have tanked today, down by 7% as of 12:30 p.m. EDT, after the leading music streamer reported its first earnings release as a public company. Spotify's guidance going forward left a bit to be desired.

So what

Revenue in the first quarter jumped 26% to 1.1 billion euros ($1.36 billion), which led to a net loss of 169 million euros ($202 million). Gross margin came in at 24.9%, slightly above the high end of the company's guidance, which had called for gross margin of 23% to 24%. The company now has 170 million monthly active users (MAUs), including 75 million premium subscribers.

Spotify interface on desktop

Image source: Spotify.

While top-line revenue and premium subscribers were mostly in line with expectations, guidance was a different story.

Now what

For the second quarter, Spotify is expecting MAUs to be in the range of 175 million to 180 million, with premium subscribers of 79 million to 83 million. The midpoint of that forecast (81 million) fell short of the 82.1 million premium subscribers that analysts are modeling for. Revenue should be 1.1 billion to 1.3 billion euros ($1.32 billion to $1.56 billion). The midpoint of that top-line forecast similarly fell short of the consensus estimate of 1.29 billion euros ($1.55 billion).

However, Spotify is sticking by its outlook for the full year, and still expects total MAUs of 198 million to 208 million, with premium subscribers of 92 million to 96 million by the end of 2018. There just might be a few bumps getting there.

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