Spotify’s Earnings Include Red Flags for Growth. The Stock Is Falling.

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Spotify did post a rare profit in the first quarter of 2021.

(Lionel Bonaventure/AFP via Getty Images)


stock is under pressure after the music streaming platform’s first-quarter earnings showed signs that user growth is slowing down from its meteoric pace during the Covid-19 pandemic, amid heightened competition from Big Tech rivals.

Shares in the Stockholm, Sweden-based company, listed in New York, tumbled more than 9% after the open on Wednesday, after it missed Wall Street’s expectations on a key metric and lowered its guidance for monthly user growth across the full year.

The back story. As with other entertainment platforms, like film and television streamer


Spotify saw breakneck user growth through the Covid-19 pandemic, as millions of housebound people turned to digital alternatives. Between the fourth quarter of 2019 and the end of 2020, Spotify added 74 million monthly active users—a key metric—and 31 million paying premium subscribers, which are the major contributor to revenue.

But the group faces increasing competition from larger rivals in Big Tech. Streaming platforms from



and some smaller rivals are putting pressure on Spotify, which has lashed out against Apple in particular over alleged anticompetitive practices with the App Store.

Having pioneered music streaming, Spotify is now pushing into podcasts. The platform is home to the high-profile show “The Joe Rogan Experience,” as well as “Renegades: Born in the USA,” which features former President
Barack Obama
and musician Bruce Springsteen.

Also:Spotify Has Had Stellar Growth. Why the Music-Streaming Company’s Latest Estimates Are Worrisome.

What’s new. Spotify said that monthly active users—a key metric—grew to 356 million in the first three months of 2021, a 24% rise compared with the same period in 2020. But this figure neared the bottom of the company’s previously guided range of 354 million to 364 million, and in a statement Spotify said it was “modestly below our internal expectations.” The metric also missed Wall Street expectations of a figure above 360 million, based on the FactSet consensus.

Growth was better among users paying for Spotify’s advertising-free service. Spotify added 3 million of these users in the first quarter to hit 158 million premium subscribers, a 21% increase from the same period in 2020. This slightly beat the Wall Street consensus of 157 million premium subscribers.

But there are signals that growth is slowing. The company said it expects monthly active users in the second quarter of 2021 to be within a range of 366 million to 373 million, disappointing Wall Street, which had expected a figure close to 378 million. Spotify expects a range of 162 million to 166 million premium subscribers in the second quarter, setting the bar high to meet the Wall Street consensus of 166 million.

Spotify also lowered its full-year guidance for monthly active users, saying that it now expects to have between 402 million and 422 million, after projecting a range of 407 million to 427 million at the end of the last financial year. However, the group’s guidance on premium users remains unchanged, and it hiked its expectations for full-year revenue slightly.

The group said “The Joe Rogan Experience” podcast in particular performed above expectations with regard to bringing in new users. “Renegades: Born in the USA,” was the second-largest Spotify podcast in March and its most internationally watched show to date, the company said.

In core financial metrics, Spotify on Wednesday reported revenues of €2.15 billion ($2.6 billion) in the first quarter, a 16% rise from the same period last year but a 1% decline from the fourth quarter of 2020. The company had a net income of €23 million in the quarter, up from €1 million in the same period last year and a rare profit for the company since it went public in 2018.

Plus:European Antitrust Charges Against Apple Coming This Week, According to Reports

Looking ahead. On the face of it, Spotify’s results are solid. Revenue growth and a rare profit are good news, but the market has soured on the stock.

The first-quarter results are a reality check that the breakneck growth Spotify saw through the Covid-19 pandemic is slowing. And that reality check comes as the platform, once so dominant in music streaming, faces increasing threats from powerful rivals like Apple and


While the growth of its podcast segment is promising, Spotify still needs to win the race to capture music listeners.

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