Sixth and Spotless: Spotify (SPOT.US) Q2 Earnings Disappoint, Stock Plunges Over 11%

We have learned from sources that music streaming platform Spotify (SPOT.US) saw its stock price plummet by over 11% on Tuesday, the largest single-day decline since July 2023. This comes after the company announced disappointing second-quarter earnings and third-quarter guidance. Data shows that the company's Q2 revenue came in at €41.9 billion, a 10% year-over-year increase, but below market expectations of €42.6 billion; net loss was €8.6 million, compared to a profit of €225 million in the same period last year; and earnings per share were -€0.42, missing market expectations of €1.90.

Spotify attributed the poor performance to increased personnel, marketing, and professional services costs, as well as a €115 million social media expense that weighed on overall results.

The company expects third-quarter revenue to reach €42 billion, below market expectations of €44.7 billion. Spotify noted that this forecast takes into account the adverse impact of a 490-point drop in exchange rates.

The platform's monthly active users grew by 11% to 696 million, with paid subscribers increasing by 12% to 276 million. Ad subscription users accounted for more than 60% of Spotify's monthly active users.

Spotify forecasts that its third-quarter monthly active user count will reach 710 million, with a net gain of 140 million new users. The company expects to add 50 million paid subscribers, bringing the total to 281 million.

Spotify's ad revenue declined by about 1% to €4.53 billion. The company noted that, despite its massive user base, it has a strong advertising portfolio and demand outlook, and will focus on promotion and new tools in the second half of the year. Some promising areas for growth include commercial advertising and automated advertising.

CEO Daniel Ek said during the earnings call: "This is actually an execution challenge rather than a strategic one. Although I'm not satisfied with our current situation, I still have confidence in our grand ambitions, and we're taking swift action to ensure we're on the right track."

EK noted that the company sees some "encouraging signs" in its programmatic business.

In 2024, Spotify will make its first full-year profit, thanks to cost-cutting and price increases. The company has long prioritized user growth and invested in areas such as podcasting and spoken-word audio outside of music. Apple Music remains one of its main competitors.

Spotify announced that, as of the second quarter, it had over 7,300 full-time employees and increased its stock buyback plan by $10 billion. The company's stock has risen more than 40% this year.