Why Is Spotify (SPOT) Stock Dropping 11% Today?
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Popular audio streaming platform Spotify (NYSE:SPOT) once again captured the limelight, this time for unpleasant reasons. Although the company’s latest third-quarter report beat consensus targets for revenue and subscriber growth, it posted a wider-than-expected earnings loss. As well, management presently mulls a service price hike, leading to significant pressure for SPOT stock.
On paper, circumstances generally appear positive for the streaming giant. According to Barron’s, top-line sales came out to about $3.03 billion. Analysts tracked by FactSet reported a consensus revenue target of $2.9 billion.
As well, Spotify “added 23 million more monthly active users for the quarter to 456 million, up 20% from last year’s third quarter.” Notably, premium subscribers grew 13% to 195 million, representing a 13% year-over-year lift. This figure was also one million more than analysts expected. Contributors to the bump-up included podcasting programs and demand from Latin America.
However, SPOT stock came under pressure in large part to the earnings miss. Spotify disclosed a net loss of 166 million euros ($165.5 million) or roughly 99 cents a share. This compares unfavorably with a profit of 2 million euros in the year-ago quarter. Analysts anticipated a loss of 84 cents.
In response, SPOT stock dropped 8% in the morning session before tanking more than 11% in the early afternoon.
SPOT Stock and Service Price Increases
Interestingly, Spotify stated that the quarterly loss centered on “higher personnel costs from expanding its global ad sales team, as well as platform investment and acquisitions, higher advertising costs, and currency declines,” per Barron’s. Despite now-obvious risks to SPOT stock, management may attempt to fill the gap through a service price hike.
According to the Wall Street Journal, Apple (NASDAQ:AAPL) increased the subscription price in the U.S. for its music service by $1 month. The news agency stated that the move represented the “first of any major company to break from the long-held $9.99 a month for individual users. The company cited an increase in licensing costs.”
“We have the same pricing power in the U.S.,” responded Spotify CEO Daniel Ek. In an interview with the WSJ, Ek stated that subscribers can expect price hikes for the service sometime in 2023.
Per the WSJ, the “premium service in the U.S. has cost $9.99 since Spotify was launched in the U.S. in 2011. Spotify has implemented dozens of price increases in markets around the world without losing customers, said Mr. Ek.”
Still, in a troubling economic environment, it’s a gutsy move for Spotify. Further, several traders apparently question the brand’s pricing power given the steep losses for SPOT stock. Certainly, it will be a name to watch in the entertainment space moving forward.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.