Spotify Sinks on Disappointing Guidance

Music streaming company Spotify Technology SA (NYSE:SPOT) reported third-quarter results before the opening bell on Thursday, recording a modest increase in premium subscribers.

The Swedish company, which operates the world’s most popular paid music streaming service, saw its number of paid subscribers grow 5% from the prior quarter to 87 million, in line with expectations. Total monthly active users, including free, ad-supported listeners, rose 28% year-over-year to 191 million as a result of growth in emerging regions like Latin America and the rest of the world.

Spotify posted earnings of 23 euro cents (27 cents) per share, well above the loss of 24 euro cents analysts were projecting. Revenue grew 31% to 1.35 billion euros ($1.54 billion), topping Thomson Reuters’ estimates of 1.33 billion euros.

Gross margins of 25.3% also surpassed analyst expectations of 24.9%.

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Average revenue per user, however, declined 6% to 4.73 euros as a result of promotions Spotify is offering to families and students to bolster its growth. The company said this was a significant improvement from the 12% decline it reported in the second quarter.

Despite the beat, Spotify’s shares fell in premarket trading as a result of mediocre guidance.

Spotify is anticipating having between 199 million and 206 million total monthly active users by the end of the fourth quarter, of which 93 million to 96 million are expected to be premium listeners. According to CNBC, analysts were hoping for 208 million users by the end of the year. The company also guided for revenue between 1.35 billion euros and 1.55 billion euros, the midpoint of which was below analyst estimates.

With a market cap of $22.92 billion, Spotify shares were trading around 10% lower on Thursday morning at $134.68. GuruFocus estimates the stock has fallen approximately 8% since its initial public offering in April.

Among the gurus invested in Spotify, Chase Coleman (Trades, Portfolio) has the largest position with 7.12% of outstanding shares. Paul Tudor Jones (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), Julian Robertson (Trades, Portfolio), George Soros (Trades, Portfolio), Ron Baron (Trades, Portfolio), Wilbur Ross (Trades, Portfolio)’ Invesco, Lee Ainslie (Trades, Portfolio) and Steven Cohen (Trades, Portfolio) are also shareholders.

Disclosure: No positions.

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