Shares of Spotify Technology (SPOT 1.49%), the world's leading audio streaming service, were pulling back today after a disappointing outlook marred an otherwise solid earnings report.
As of 10 a.m. ET on Wednesday, the stock was down 8.2%.
Growth was solid in the first quarter, with premium subscribers (paying users) up 15% to 182 million, even as the company lost 1.5 million subscribers after it withdrew from Russia.
Revenue was up 24%, or 19% in constant currency, to 2.66 billion euros ($2.84 billion), ahead of the company's own guidance and analyst estimates. Revenue growth was a product of the increase in premium subscribers and a 6% bump in average revenue per user, or 3% in constant currency.
Gross margin in the quarter fell slightly from 25.5% to 25.2%, and other operating expenses rose 27% to 677 million euros, meaning it finished with an operating loss of 6 million euros. Free cash flow in the quarter declined from 41 million euros to 22 million euros.
Spotify continues to see strong growth in its podcasting segment with the number of podcasts on the platform up from 3.6 million in the fourth quarter to 4 million. It also signed a long-term partnership with the soccer club FC Barcelona, and it expanded its two-sided marketplace, allowing more artists to create sponsored recommendations.
What weighed on the streaming stock was its outlook for the second quarter as the subscriber forecast missed estimates. Spotify sees premium subscribers increasing to 187 million, compared to estimates at 189.4 million. That forecast assumes it will lose another 600,000 subscribers from its withdrawal from in Russia.
Spotify also called for a 20% increase in revenue to 2.8 billion euros, and an operating loss of 197 million euros, which includes 50 million in unfavorable foreign exchange.
Overall, the Spotify growth story remains intact, but the sell-off seems understandable given the weaker-than-expected subscriber growth and the broader shift in sentiment against growth stocks.