Why Spotify Stock Crashed
- Spotify is continuing to grow its user base and add new paying subscribers.
- Despite its profits increasing, rising costs are taking their toll.
What’s going on with Spotify stock
Shares of Spotify stock crashed on Wednesday when investors realized how much the audio platform was losing. Yesterday, when the markets closed, Spotify‘s (NYSE:SPOT) stock price had decreased by over 13%.
Why we care
In the third quarter, Spotify’s monthly active users (MAUs) increased 20% from the previous year to 456 million. This was due to robust growth in international markets, surpassing management’s guidance of 450 million MAUs and Wall Street’s predictions of 448.6 million.
Paying users increased at a slower but steady pace. Thanks to promotions and new household plans, the streaming company increased its premium subscriber base by 13% to 195 million subscribers. This number beat management’s and analysts’ projections of 194 million subscribers.
Spotify is continuing to grow steadily with its advertising initiatives. Ad-supported revenue increased by 19% to 385 million euros ($388 million), primarily due to the growth in podcasting listenership. As a result, Spotify’s revenue rose 21% this past quarter to 3 billion euros ($3 billion).
With higher spending on content and other growth investments, Spotify’s profit margins have taken a hit. As a result, the company showed a gross margin of 24.7%, down from 26.7% last year during the same quarter. They also reported an operating loss of 228 million euros ($230 million). Before this, their operating income was 75 million euros ($76 million) in the prior-year period.
Spotify intends to raise prices on its subscription plans next year to improve profitability, as CEO Daniel Ek told TheWall Street Journal. As a result, subscribers can expect their streaming subscription costs to jump from the current $9.99 within the next two years.
Spotify is still expecting its subscriber base to multiply. The company predicts that it will add about 23 million new users and 7 million more subscribers by the end of this quarter.