Spotify (SPOT) Shares Plunge 12% on Weak Q2 Guidance Despite Q1 Beat

Key Takeaways

• First quarter earnings per share of $3.45 exceeded analyst projections by $0.51
• Second quarter operating income projection of €630M fell short of the €684M consensus
• Company’s Q2 premium subscriber outlook of 299M missed the 302M consensus estimate
• Advertising-supported revenue declined 5% compared to the prior year, though increased 3% in constant currency terms
• Shares dropped up to 12% during premarket hours after the earnings announcement

While Spotify delivered impressive first quarter results that exceeded analyst expectations, market participants quickly shifted their attention to the company’s forward-looking statements — and the outlook sparked a significant selloff.

The streaming giant posted first quarter revenue of €4.53 billion, representing an 8% increase from the same period last year and matching Wall Street projections. Earnings per share reached $3.45, surpassing consensus by $0.51. The platform’s monthly active user base climbed to 761 million, exceeding the anticipated 756.6 million.

First quarter operating income reached a company record of €715 million, beating the €681.6 million analyst forecast. This milestone was partially attributed to reduced payroll tax expenses, which correlate with Spotify’s stock performance — shares have declined approximately 15% year-to-date.

Spotify Technology S.A., SPOT

The company’s premium subscriber count increased 9% to reach 293 million in the first quarter, slightly missing the 294.5 million projection, with a net gain of 3 million subscribers throughout the period.

Investor concerns emerged when management unveiled second quarter projections.

Spotify issued guidance calling for Q2 operating income of €630 million — significantly trailing the €684 million analyst consensus. This represents a notable decline from the record-setting first quarter performance.

The company’s premium subscriber forecast of 299 million for the second quarter also disappointed, falling below the 302 million consensus. Management anticipates adding only 6 million net subscribers.

The monthly active user projection of 778 million for Q2 did surpass the 773 million estimate, indicating continued strength in the platform’s free tier.

Advertising Revenue Faces Challenges

The advertising segment emerged as a notable area of concern. Ad-supported revenue fell 5% year over year during the first quarter. While constant currency figures showed a 3% gain, foreign exchange headwinds reduced overall revenue growth by approximately 600 basis points.

This advertising weakness is drawing increased scrutiny as Spotify has positioned its advertising platform as a key growth engine complementing its subscription business.

Second quarter revenue guidance of €4.8 billion came in close to the €4.77 billion consensus estimate, providing limited comfort regarding profitability trends.

Company Doubles Down on AI Technology

Spotify continues advancing its artificial intelligence capabilities throughout the platform. The company enhanced its AI DJ voice feature, introduced AI Playlist enabling natural-language playlist generation, and recently expanded its Prompted Playlist functionality to incorporate podcast content.

The company underwent a leadership transition at year’s start. Founder Daniel Ek transitioned to the executive chairman role in January, with Gustav Soderstrom and Alex Norstrom assuming operational leadership.

Spotify faces competition from Apple and Amazon in the music streaming market.

SPOT shares declined approximately 12% in premarket activity following the earnings release, before stabilizing at roughly 8% lower as regular trading commenced.

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