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Spotify’s share price took a hit yesterday as the streaming music firm published its first quarterly financial report as a publicly listed company. Even though most of the figures contained in said report were pretty much in line with expectations, based on statements made by Spotify in the run to the firm’s direct listing on the New York Stock Exchange last month. The company’s CFO reckons investors just weren’t paying attention.

According to the quarterly report, net sales were up 26% year-on-year for the first quarter of 2017, though they were down slightly on the previous quarter. That was a result of a 22% dip in ad income, which can possibly – in part at least – be explained by the seasonable ups and downs of the ad market: there’s always more ad spend in the Christmas quarter.

Ahead of its arrival on the NYSE, Spotify did try to put a positive spin on the revenue-generating potential of its loss-leading really-all-about-the-upsell free service – a service it enhanced last week, of course – which might make investors nervous when they see that side of the business under-perform.

However, the real money in streaming is in premium subscriptions. There were 75 million paying subscribers by the end of the quarter, a 45% increase on the same period a year ago. In terms of subscription revenue, that was up 2% quarter-on-quarter to 1.04 billion euros.

Of course, another reason for concern among investors is that Spotify – like all streaming music companies – is currently loss-making. Although Spotify was clear that that would be the case for a while yet as it continues to grow the business. Streaming is a scale game, and Spotify’s aim is to get to the level of scale where the whole thing starts to become profitable.

Nevertheless, among the concerns expressed by Wall Street types are the level of losses, the pace of growth, and the financial value of each subscriber.

Some are concerned that Spotify’s pretty impressive premium subscriber growth numbers are being achieved through heavy discounting, reducing the value of each customer. Other more US-centric investors worry about how the service is competing in their home market, where rivals Apple and Amazon are particularly strong and therefore Spotify subscriber growth is generally slower.

All of which might have contributed to an almost 9% drop in Spotify’s share price in after-hours trading following the release of yesterday’s financial report. Spotify CFO Barry McCarthy told the Financial Times that there were no surprises in said report, and that the share price wobble was likely the result of the market having got slightly ahead of itself when the firm listed. That is quite common with much hyped tech start-ups.

The FT quote McCarthy as saying: “It was a no-surprise quarter that turned into a surprise for the market. I don’t know what I would have done differently, except scream in a louder voice: ‘We’re going to do what we said we would’”.

He added that the streaming music firm was pretty much happy with the outcome of its stock market listing. He went on: “We thought there was a risk sellside analysts would ignore the stock. We thought success would be if fifteen analysts followed the stock after three months, and we have 20 analysts covering it already. Volatility has been terrific, liquidity has been good. In hindsight, all of what we hoped to accomplish, happened”.

Which is all great Barry, but CMU’s single Spotify share is now worth pretty much what we paid for it on the first day of trading. This time yesterday we were up $9.71 on the deal. And I had such big plans for how we were going to spend that $9.71!


Source: Complete Music Update