Spotify forecasts weak profit as user growth slows in North America, Europe
Spotify anticipates lower third-quarter profit, missing Wall Street expectations. Slowing user growth in key regions impacts the streaming giant's performance. New AI features and a fan cover agreement aim to attract more users. Revenue is projected to slightly exceed estimates, while active users fall short. The company's shares have experienced a notable decline this year.
Spotify projected third-quarter profit to fall short of Wall Street expectations on Tuesday, as the music streaming service reported a slowdown in user growth within major markets in Europe and North America. This decline in user growth prompted the company's shares to dip nearly 4% in premarket trading.The streaming giant has been striving to maintain its competitive edge by introducing AI-driven features like "Personal Podcasts" and "Reserved," as well as offering new services to rival YouTube and Netflix.
Furthermore, Spotify has entered into a fresh partnership with digital music licensing firm Merlin to provide its upcoming paid tool for fan-made covers and remixing, enabling artists under Merlin's Spotify agreements to participate.In the upcoming quarter, Spotify anticipates generating €670 million in operating income ($770.97 million), which falls slightly below the average estimate of €677.8 million among analysts, as per data from Visible Alpha.
In the previous quarter, the company achieved an operating income of €655 million, surpassing analysts' estimates of €639.2 million, largely due to robust revenue growth and a reduction in payroll taxes.Social charges, which are contingent on the company's share price, impacted the second quarter's operating income. The value of Spotify's shares has plummeted by around 16% so far in 2023.
Despite this, the company's quarterly revenue surged 14% to €4.78 billion, marginally below the LSEG-compiled estimate of €4.80 billion. The revenue forecast for the third quarter of €5 billion exceeded estimates of €4.93 billion.Spotify's monthly active user forecast of €788 million was lower than Visible Alpha's estimate of €793.6 million.
Additionally, the company's outlook for a 5 million increase in premium subscribers to €305 million aligned closely with estimates. While both total monthly active users and premium subscribers grew, the percentage contribution of North America and Europe to total monthly active users declined. Moreover, Europe's share of premium subscribers has continued its downward trend.
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