Spotify Technology SA posted a 45 percent jump in subscriptions during its first quarter as a public company. That wasn’t enough to please its increasingly bullish investors.
The shares tumbled as much as 10 percent in late trading Wednesday after the music-streaming service said it reached 75 million premium users last quarter. Though the number matched Spotify’s projections, it wasn’t the breakout growth shareholders expected after a strong debut on the New York Stock Exchange last month.
Spotify has pitched itself as the dominant player in music streaming, and Chief Executive Officer Daniel Ek has set out to claim the largest share of a market that should one day number billions of people.
“While the fundamentals look solid and Spotify came in line with its guidance, today’s after-hours stock reaction can be viewed as an expectations correction,” said Rohit Kulkarni, an analyst at SharesPost Inc.
The company’s stock fell as low as $153 in extended trading. Before the rout, it had climbed 29 percent over the past month.
“Sometimes the market just gets stupid and just trades on its own momentum,” Chief Financial Officer Barry McCarthy said in an interview.
The broader music business is staging a comeback, and the big question surrounding Spotify is how much it can capitalize on the recovery.
So far, no music streaming service has proven it can generate huge profits on its own. Pandora Media Inc. is worth a fraction of what it was when it went public, while other major music streaming services are owned by technology companies that don’t rely on music for their profits.
Still, Spotify is losing money. The Stockholm-based company reported an operating loss of 41 million euros ($49 million) last quarter on sales of 1.14 billion euros.
The losses weren’t as steep as most analysts had feared. Spotify has improved its profit margins by squeezing music-rights holders, and it plans to use its growing heft to negotiate better terms in the next year. The labels will pay Spotify for helping them better target potential listeners, McCarthy said.
Spotify has also invested in non-music programming such as podcasts, opening a new front in its rivalry with Apple Inc. The recent growth of Apple’s music app has raised concerns that it will limit Spotify’s popularity.
Ek has downplayed the threat from Apple, as well as Amazon.com Inc. and Alphabet Inc.’s YouTube. And so far, he has a comfortable lead: Spotify is more than twice as large as Apple Music, its closest competitor.
“We see no meaningful impact from competition,” Ek said on a call with analysts. “We don’t think this is a winner-take-all market.”