Spotify drops after reporting weak monthly user growth

Shares of Spotify Technologies SA dropped as much as 10% on Wednesday after the music streaming platform missed its earlier forecast of total monthly user growth.

Although the Swedish company reported a monthly active user (MAU) of 365 million, up 22% year-over-year, it fell short of its guidance of 366 million to 373 million users.

Spotify pointed toward the ongoing COVID-19 pandemic and said that they had to pause marketing campaigns due to its severity, affecting the company’s performance in several markets.

A user sign-up issue also affected MAU growth, the company said.

“Because Spotify is a global business MAUs are one of the hardest things to forecast,” Spotify CEO Daniel Ek told CNBC. “We knew that going into the year we’d be impacted by the pull-forward. I’m a little disappointed we didn’t realize it would affect us in Q2 as well. We would have expected some of these markets to open a little faster.”

Spotify’s paid subscribers grew 20% to 165 million in the second quarter compared to the year-earlier, within the guidance range.

Its ad-supported revenue benefitted from strong demand and favorable comparisons from 2020′s lows.

“The strength in Ad-Supported Revenue was led by our Direct and Podcast sales channels, with the latter benefiting from a triple-digit Y/Y gain at existing Spotify studios (The Ringer, Parcast, Spotify Studios, and Gimlet) along with contributions from the Megaphone acquisition, the exclusive licensing of the Joe Rogan Experience, and Higher Ground,” the company said in the earnings report.

The streaming platform indicated it has no plan to slow its push into podcasts, after adding about 300,000 podcasts in the previous quarter to have 2.9 million podcasts on the platform.

“Spotify historically has been a music subscription company, now is an audio platform,” Ek told CNBC. “We’ve been investing in podcasts the last two years and deliberately started investing in advertising to make that a new leg of the stool. Advertising is breaking out and becoming a second big revenue driver for Spotify.”

It expects to have total MAUs in the range of 377 million to 382 million and paid subscribers in the range of 170 million to 174 million for its third quarter.

Picture Credit: Complex