Investors switched off Spotify Technology SA (NYSE:SPOT) after paid subscriber numbers grew slowly in the first quarter, echoing the measly growth at Netflix and following criticism over controversial Joe Rogan episodes.
Revenue in the quarter was better than expected, up 19% at €2.7bn thanks to double-digit growth in both Premium and Ad-supported revenue.
Paid subscriber numbers grew around 2mln, which was around a million under guidance, while ad-supported revenue fell from 15% of the total last quarter to 11%.
The company said a switch-off in Russia following the invasion of Ukraine resulted in an “involuntary churn” of roughly 1.5mln local paid subscribers.
Monthly active users (MAUs) also grew beyond expectations, but Spotify said the outperformance was likely to be due to a service outage that led to millions of users creating new accounts to get back in.
Podcast consumption rates grow by double-digit rates, with 0.4mln new podcasts added to the platform during the period.
Gross profit margins were lower than last year at 25.2% but ahead of guidance, with Spotify swinging to a €6mln loss from an operating profits of €14mln as costs increased.
Spotify expects to add 14mln MAUs in the current quarter, excluding the impact Russian operations. Operating losses are expected to widen to €197m, partly reflecting the impact of unfavourable exchange rate movements on operating costs.
Shares tumbled 8% to US$101 following the release.
Laura Hoy, an analyst at Hargreaves Lansdown, said with ad-supported revenue falling, the recent acquisition of Podsights "should help with this, but it remains to be seen whether the group can improve its advertising proposition.
"Another area of concern was Spotify’s forecast for a hefty operating loss in the coming quarter. Currency headwinds played a role in this, and Spotify’s got to spend in order to continue attracting new users, but there’s no way around the fact that such steep losses will eventually start eating into the group’s sturdy cash position.”