Spotify shares drop after disappointing subscriber growth

Spotify Technology SA shares fell as much as 5.1% in premarket trading Wednesday after the music-streaming company reported slightly slower subscriber growth than investors had hoped.

The company ended the most recent quarter with 108 million subscribers to its premium service, a shade below the 108.5 million forecast by analysts and below the midline of Spotify’s internal forecast.

“We missed on subs. That’s on us,” Chief Executive Officer Daniel Ek said on a conference call. He said the shortfall was related to execution, and the streaming giant plans to make up the lost ground by year-end. Ek noted that Spotify came in at the higher end of forecasts except for that one number.

Investors have high expectations for Spotify, the world’s largest paid online music service, and have sent shares down after almost all of its earnings reports as a public company. “This company is owned for subscriber beats and while management is likely to sound positive on the call, the subscriber miss is unlikely to be forgiven,” Lynx Equity Strategies analyst Jahanara Nissar wrote in a note.

Barry McCarthy, Spotify’s chief financial officer, at first dismissed the brief downturn before saying investors may have expected a higher number. The company’s shares are up 37% this year.

“There could have been a baked-in whisper number we don’t know about,” McCarthy said. “There are times when investors are looking south instead of north and miss the forest through the trees.”

Spotify’s overall user base grew to 232 million, above Wall Street projections of about 227 million and the company’s guidance for a range of 222 million to 228 million. The majority of those people use the free, advertising-supported version of the service.

The company also said it has reached agreement with two of four major record labels regarding licenses. Getting to long-term profitability from the current losses will hinge in a big way on the new royalty arrangements the company is negotiating with major music labels. Spotify restructured the deals such that it can create new tools and services — new sources of revenue — that are free from labels’ guaranteed cut of sales. McCarthy described it as an important win.

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Spotify shares drop after disappointing subscriber growth