Spotify Technology SA (NYSE: SPOT) is having an incredibly rough day int he market today, and for good reason. The company reported its financial results for the first quarter. While the results were in line with expectations, they proved to be a very loud reminder of the fact that the company is far from profitable. Today, we’ll talk about:
- The earnings report;
- what we’re seeing from the stock;
- why investors are so concerned;
- and what we’ll be watching for ahead.
SPOT Reports Financial Results
As mentioned above, Spotify is having an incredibly rough day in the market today after reporting its earnings. At first glance, the first quarter actually went pretty well, with results coming in right in line with expectations. Here’s what we saw:
- Revenue – In the first quarter, SPOT generated revenue in the amount of $1.37 billion. This figure came in right in line with analysts expectations and showed strong growth on a year over year basis from $1.09 billion.
- User Growth – When it comes to paying subscribers, the company’s highest priority user, the company added 4 million subscribers, bringing the total number of paid subscribers to 75 million. Analysts expected that the company would report 75.1 million paying subscribers by the end of Q1. When it comes to ad supported monthly active users, the number came to 99 million, coming in ahead of analyst expectations at 98 million.
- Guidance – In the second quarter, SPOT said that it is expecting to generate revenue between $1.32 billion and $1.56 billion. Analysts are expecting to see $1.55 billion in revenue in the quarter. The company is also expecting to have between 79 million and 83 million paying subscribers by the end of Q2. According to FactSet, expectations are that the company will have 82.1 million paying subscribers.
What We’re Seeing From The Stock
As investors, one of the first lessons that we learn is that the news moves the market. In this particular case, the news looked positive but proved to be negative. We’ll talk about why in a moment. Nonetheless, it’s no surprise to see that Spotify is falling in the market today. Of course, our partners at Trade Ideas were the first to alert us to the declines. At the moment (11:25), SPOT is trading at $158.43 per share after a loss of $11.57 per share or 6.81% thus far today.
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Why The Report Is Viewed As Negative
The truth is that while SPOT hit the mark with regard to analyst expectations, the report was a screaming reminder of the fact that the company is not profitable, and will likely not be profitable for some time. After all, Spotify is a massive company with more than a hundred million users. If the company isn’t already turning a profit, something is wrong. At the end of the day, you can drive all the revenue you want, but if you’re paying $1.25 to make $1.00, you’re doing something wrong.
What We’ll Be Watching For Ahead
Moving forward, the CNA Finance team will continue to keep a close eye on SPOT. In particular, we’re interested in following the story surrounding the company’s efforts to increase subscribers and eventually create a profit. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!
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