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Why Spotify's Shares Plunged 10% on Wednesday

By Travis Hoium - Updated Feb 3, 2021 at 4:08PM

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Spotify missed estimates but continues its growth trajectory.

What happened 

Shares of streaming music and podcast company Spotify (SPOT 4.71%) fell as much as 10% in trading on Wednesday after reporting fourth-quarter 2020 earnings. Shares came slightly off those lows but still closed the day down 8.2%. 

So what

Revenue jumped 17% versus a year ago to $2.58 billion, and net loss was $125 million, or $0.79 per share on an adjusted basis, which pulls out one-time items. Analysts were expecting revenue of $2.61 billion and a loss of $0.69 per share.

Smartphone and headphones on a wooden table.

Image source: Getty Images.

Guidance is really what investors were disappointed with today, with Spotify saying it expects sales of $2.51 billion in the first quarter and a loss of $63.6 million. Analysts expected $2.69 billion of sales. For the year, revenue guidance of $11.1 billion was below analyst estimates of $11.6 billion.

Now what

Beating or missing analyst estimates can often move a stock, but Foolish investors will want to look at the long-term picture for this growth stock. Management said that advertiser spending is starting to increase again after a COVID-19-driven decline starting in the second quarter of 2020. Podcast and Ad Studio ad-supported revenue also more than doubled in the past year, and that's with only a small rollout of streaming ad insertion, which gives dynamic ads targeted to users. 

Long term, the growth story is intact for Spotify, and the company is well positioned in both music and podcasts. It just isn't growing as fast as analysts expected today, and that's why shares are down. 

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