Spotify Stock Tanks: Here’s Why Investors Are Hitting Pause Today
Another bloodbath for streaming bulls—Spotify shares just nosedived. Was it earnings? Guidance? Or just Wall Street's fickle mood swings?
The headline act: A brutal selloff
No sugarcoating it—SPOT got slaughtered in today's session. The stock cratered double-digits as algos piled on the pain. Cue the usual suspects: downgrades, sector rotation, or maybe just some hedge fund blowing up their book (again).
Behind the music
Zero surprises here—macro headwinds meet rich valuations. Premium subscribers might be growing, but at what cost? Those podcast bets aren't paying off fast enough for traders hopped up on instant gratification.
Funny how 'long-term plays' only work when the Fed's printing money.
Image source: Getty Images.
Spotify Q2 earnings
Not all Spotify's news was bad. Monthly active users grew 11% year over year, with premium subscribers up 12%.
Operating profits soared 53% to 406 million euros ($468.9 million), and free cash FLOW hit 700 million euros ($808.4 million).
And yet, Spotify appears to have broken the cardinal rule in investor relations last quarter: If you're going to make a promise, deliver on it.
While presenting objectively fantastic numbers indicating tremendous growth, Spotify's Q2 results fell short of its own forecasts for Q2 sales (Spotify had promised 4.3 billion euros, but delivered only 4.2 billion), and for operating income as well. Spotify said it would earn 539 million euros. Its actual operating profit was 25% less.
Time to sell Spotify stock?
The good news: Spotify's not making that mistake again. Turning to guidance, Spotify promised only flat sales of 4.2 billion euros again in Q3 -- no growth at all. Operating profits might be 485 million euros, more than in Q2, but less than Spotify promised for Q2.
Personally, I like the underpromise, overdeliver strategy better than the alternative. Still, convincing investors to pay 110 times earnings for a company that just promised zero sales growth is going to be tough. Between the surprise loss and the weak guidance, this is why Spotify stock crashed today.
