Projected Profits of Spotify Fall Short Due to Increased Taxes, Stocks Decrease Subsequently
Spotify Forecasts Lower Third-Quarter Profits Amid Rising Costs and Weaker Monetization
Spotify, the leading music streaming platform, has announced lower third-quarter profit forecasts, despite a surge in demand for its premium music-streaming plans. The company attributes this to rising operational costs, increased tax expenses related to employee compensation, and weaker-than-expected revenue growth impacted by unfavorable currency fluctuations.
In the April-to-June quarter, the company reported a 10% increase in revenue to €4.19 billion ($4.85 billion), but this fell short of an estimate of 4.26 billion euros. The unfavorable currency movements reduced year-over-year total revenue growth by about 440 basis points in the reported quarter.
Tough competition in music streaming and podcasts from Apple and Amazon led to an eight percent increase in Spotify's operating expenses during the same period. This increase in costs, coupled with the impact of currency headwinds, has led to a lower profit outlook.
Spotify forecasts third-quarter profit of €485 million ($561 million), missing the €562 million consensus. In addition, the company projected Q3 revenue of €4.2 billion, below the anticipated €4.48 billion. These factors have raised investor concerns about Spotify's ability to maintain profitability amid competition and cost pressures.
Despite the subscriber growth, with premium subscribers increasing by 12% year-over-year to 276 million and expected to reach 281 million, Spotify expects a 1% decline in ad-supported revenue despite investments in advertising and podcasts. This underperformance in ad-supported revenue contributes to the slower monetization that Spotify is signaling in its cautious guidance.
In response to these challenges, Spotify's board has approved a $1 billion increase to its share repurchase program, bringing the total authorization for the program to $2 billion. This move is intended to support the company's shareholders.
Spotify's shares fell nearly nine percent in premarket trading, reflecting investor concerns about the company's ability to navigate the cost pressures and maintain profitability amid increased competition.
[1] Increased tax expenses related to employee compensation contributed to lower profit forecasts. [2] Revenue was impacted by unfavorable currency fluctuations, reducing growth by about 440 basis points. [3] Ad-supported revenue declined by 1%, underperforming despite strategic investments. [4] Spotify's cautious guidance and profit outlook signaled ongoing cost pressures and slower monetization, despite user growth.
- The raised operational costs, including increased tax expenses related to employee compensation, are contributing to Spotify's lower third-quarter profit forecasts within the realm of finance.
- The revenue growth, impacted by unfavorable currency fluctuations, has reduced by about 440 basis points in the third quarter, indicating a slowdown in business growth due to technology-driven factors.
