Spotify Falls as Fourth-Quarter Revenue Outlook Disappoints

(Bloomberg) -- Spotify Technology SA dropped as its fourth-quarter revenue forecast fell short of some analysts’ predictions, extending a rough stretch for the world’s biggest paid music service.

• Spotify said it expects revenue of 1.35 billion euros ($1.54 billion) to 1.55 billion euros, compared with analysts’ estimate of 1.49 billion euros as compiled by Bloomberg.

Key Insights

• Though third-quarter subscriber growth was roughly as expected, the revenue outlook is troubling to investors who are betting on years of growth in paid streaming. Wall Street had forgiven the company’s losses in hope it would make money once it reaches a certain size.
• Spotify has little margin for error. Streaming services pay a majority of their sales to music companies in exchange for rights to songs, a relationship that makes it hard to turn a profit. Losing money on music is palatable for technology giants like Amazon that rely on music to help sell other things. But Spotify has no other business.
• Investors are looking for a payoff from Spotify’s push into alternate forms of audio, including podcasts, which is meant to reduce its reliance on music. It has also been offering artists ways to release songs without a record label, boosting the cut for both the musician and Spotify.

Market Reaction

• The shares fell as much as 4.5 percent to $143 in early trading after the results were released. Pessimism about technology companies had battered Spotify’s stock price in recent weeks, depressing shares 24 percent since their peak in July.

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To contact the reporter on this story: Lucas Shaw in Los Angeles at lshaw31@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, John J. Edwards III

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