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Earnings: Spotify swings to profit in Q3, but investors irked by topline miss

Spotify (SPOT) defied Wall Street expectations of a loss in Q3 by posting a profit of €0.23 ($0.26) per share. Analysts had projected a loss of 41 cents per share. However, the music streaming platform’s revenue of €1.35 billion ($1.54 billion) missed street projection of $1.57 billion.

SPOT shares fell 4% following the earnings release during pre-market trading.

Spotify third quarter 2018 Earnings Infographic

Monthly active users grew 28% to 191 million at the end of Q3, helped by solid growth in Latin America and Rest of the World. Driven by Student and Family Plans, premium subscriber base jumped 40% to 87 million during this period.

Spotify rolled out an affordable family plan three years ago, which helped drive growth in its premium subscription base. A majority of Spotify’s revenue comes from its premium subscribers.

However, the success of these plans also put pressure on the margins, in turn, reducing its average revenue per user (ARPU) by 6%. Excluding its impact as well as the headwinds from foreign exchange, Spotify said ARPU would have declined 4%.

Spotify is experimenting with a game-changing ad system

Spotify, which competes with Apple Music, expects total revenue to grow 18-35% during the fourth quarter, riding on the back of a 24-29% growth in Monthly Active Users. The Swedish firm has also projected a 30-36% increase in Premium subscriber base.

Over the past three months, Spotify’s stock has fallen 23%, and over the past one month, it has dropped 21%, causing the company to lose a meaningful portion of its market cap.

 

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