What happened

Shares of Spotify (SPOT -0.77%) fell 12% Wednesday after the streaming music and podcast company released its first-quarter earnings report. 

So what

Spotify's revenue climbed 16% year over year to $2.6 billion. Its free cash flow, meanwhile, improved to nearly $50 million, compared to negative $25 million in the year-ago period. The gains were fueled by a 21% rise in premium subscribers, to 158 million.

Many people have turned to digital forms of entertainment while cooped up at home during the pandemic. Podcast and streaming music providers, in turn, have enjoyed increased demand for their services. 

A downwardly sloping stock chart.

Spotify's stock price fell sharply Wednesday. Image source: Getty Images.

However, Spotify is facing intense competition from larger rivals Apple and Amazon. This likely weighed on Spotify's active user growth during the quarter. Although its monthly active users rose 24% to 356 million, this closely watched figure was below the 360 million Wall Street had expected. 

Now what

Spotify also lowered its full-year forecast for active users to between 402 million and 422 million, down from a prior estimate of 407 million to 427 million. The reduced growth outlook comes despite the company's heavy content investments. Spotify reportedly paid more than $100 million to lure popular podcast host Joe Rogan into signing an exclusive deal back in May.