Spotify Technology SA shares dove to their lowest prices on record Wednesday as subscriber gains continue to slow faster than analysts expected, but the streaming-music service’s chief executive insists his current issues are nothing like Netflix Inc.
added 1 million fewer subscribers in the first quarter than analysts projected, even after those analysts reduced estimates following a disappointing forecast from company executives three months ago. The same dynamic appeared in the forecast for the second quarter, with executives projecting 187 million subscribers at the end of the period while analysts were projecting 188.85 million, according to FactSet.
Full earnings info: Spotify meets revenue expectations but stock still falls
Spotify had matched or exceeded executives’ subscriber guidance for 14 consecutive quarters until Wednesday’s report, according to FactSet records, and a second consecutive disappointing subscriber forecast brought Netflix
to the mind of some analysts. The streaming-video service saw subscribers decline for the first time in a decade in the first quarter and its stock was slammed amid questions about the durability of gains for such streaming services.
Opinion: Are you sharing a Netflix password? Not for long …
In a conference call Wednesday, the first question for Chief Executive Daniel Ek brought up that dynamic, with an analyst asking if the market saturation and competition factors that Netflix executives cited are concerns for Spotify as well.
“I think a lot of people are grouping us and Netflix together. And I’ve said this before, but I’ll say it again — besides both being media companies and being primarily subscription revenue companies, that’s kind of where the similarities end for me,” Ek said.
“With Spotify, for instance, we are a platform. Netflix is not. With Spotify, we have a free service. Netflix does not. We have hundreds of millions of pieces of content. Netflix makes its own original content solely and licenses a little bit. So it’s just vastly different businesses. And again, we have seen competition in Spotify since 2015. And when I look at the video landscape, it seems like competition is heating up. So there’s a lot of other dissimilarities between the two businesses currently as well.”
Spotify executives issued their disappointing first-quarter subscriber forecast that they could not hit amid an uproar about the podcast “The Joe Rogan Experience” that led prominent musicians to call for a boycott of the service. Executives said then that the guidance was not affected by the controversy and did not receive any questions about the effects Wednesday. Instead, they said the shortfall was a result of discontinuing Spotify’s business in Russia due to the invasion of Ukraine, which cost it 1.5 million subscribers in the quarter.
“When you sort of adjust for our exiting of Russia, we exceeded our subscriber numbers in the quarter,” Chief Financial Officer Paul Vogel said in the conference call. “So hopefully that gives you an indication of kind of the overall strength of the subscriber business.”
Netflix also pointed out that it lost subscribers in Russia after discontinuing service there, and pointed out that subscribers would have increased overall without that shortfall.
See also: Yale professor is keeping tabs on companies still operating in Russia despite Ukraine invasion — and many have now pulled out
Executives’ forecast also called for higher quarterly operating losses than analysts expected, almost 200 million euros. Ek explained that the guidance for substantial losses was the result of investment in original content and a hiring binge as Spotify seeks to branch out from a focus on music.
“We see the core business that’s been around for a while having steady, consistent growth with improving trends,” the CEO said. “And we’re going to continue to invest against the business that we think is setting us up for not just the next couple of quarters, but the next five to 10 years, and that’s what you’re seeing in some of those numbers.”
Spotify stock sank as much as 13.8% through 2 p.m. Eastern time Wednesday, to an all-time intraday low of $96.60. The stock has never closed lower than $107.75, which shares hit in December 2018, the end of its first year as a public company. The stock has now declined 58.5% so far this year, as the S&P 500 index
has dropped 12.4%.