Spotify Hits Sour Note in Debut -- WSJ
May 03 2018 - 3:02AM
Dow Jones News
Streaming service misses Wall Street expectations, sending
shares sharply lower
By Anne Steele
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (May 3, 2018).
Spotify Technology SA's shares took a hit after hours as its
first earnings report as a publicly traded company met the
company's own guidance but fell short of Wall Street
expectations.
The report Wednesday was Spotify's first since going public last
month. Shares in the Stockholm-based company fell 7.7% after hours
in New York to $156.99.
Spotify added a net four million paid subscribers -- its most
lucrative type of customer -- during the quarter, bringing the
total to 75 million. Still, most of its users are on its free,
ad-supported tier. Including those, the company said it now has 170
million monthly active users. Both results came at the high end of
the company's forecast.
In the company's first earnings call, Chief Executive Daniel Ek
batted away questions about competition heating up with Spotify's
top rivals.
"We don't see any kind of meaningful impact of competition," he
said in response to a question about Apple Inc.'s recent surge in
subscription growth. "We don't think this is a winner-take-all
market. Multiple services will exist in the market, and we're
focused on growing that market."
He added that Spotify is more focused on meeting its own
targets. "We're looking pretty good," he said.
As for Amazon.com Inc.'s voice-activated Echo speaker, with its
Alexa virtual assistant, Mr. Ek called such technology an
opportunity.
"Voice is growing, and Spotify is an application available both
on Alexa speakers and Google Home," he said. "We view that as a
long-term opportunity, not a threat."
It isn't unusual for tech companies to disappoint in their first
earnings reports after going public. Facebook Inc., Twitter Inc.
and, most recently, Snap Inc. all struggled to meet investor
expectations initially.
Spotify, which has reported net losses every year since it
launched in 2008, narrowed its first-quarter loss to EUR169 million
($202 million), or EUR1.01 a share, from EUR173 million, or
EUR1.15, in the same period a year earlier. Analysts polled by
Thomson Reuters were expecting a loss of 36 European cents.
Revenue grew 26% to EUR1.1 billion, in line with the company's
and analysts' guidance.
The company has said it is prioritizing growth over profit -- a
strategy executives believe will make the business more valuable
long term. None of Spotify's streaming competitors has ever
reported a profit.
Free cash flow -- a measure of the cash a company generates that
many investors view as a good proxy for performance -- was EUR74
million in the quarter, up from EUR64 million a year earlier.
For the second quarter, Spotify said it expects monthly active
users to reach 175 million to 180 million and to have 79 million to
83 million premium subscribers. The company forecast that revenue
will be in a range of EUR1.1 billion to EUR1.3 billion.
Spotify backed its previously offered guidance for the year that
revenue would increase by as much as 30% and premium subscribers
would increase by as much as 36% year over year.
Last month, Spotify said it added more features for its popular
free tier, which serves as a funnel to the subscription service
that generates more of its revenue. The company is now offering
on-demand listening to free users, who were previously able to
listen to albums and playlists with their songs in a shuffled
order.
During Wednesday's call, Mr. Ek said early customer feedback has
been "really, really good."
Write to Anne Steele at Anne.Steele@wsj.com
(END) Dow Jones Newswires
May 03, 2018 02:47 ET (06:47 GMT)
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