The headaches of life as a public company are well known: the quarterly scrutiny of your financial and other business metrics leaving little room to hide, as well as the instant, often-brutal verdict of Wall Street as your share price bounces around – sometimes with what can seem like a tenuous link to the actual health of the business.
Thus: Spotify, which saw its shares fall by up to 11% last night following its latest quarterly financial results – and this after declining 17% in October as part of a wider tumble for tech stocks of all stripes. This, despite Spotify’s revenues rising by 31% year-on-year and 6% quarter-on-quarter; despite premium-subscriber growth of 40% and 5% respectively, and despite recording its first-ever quarterly net profit – albeit, as we pointed out yesterday, due to a one-off tax benefit, which turned out to be related to Spotify’s investment in Tencent.
Why the slump? The consensus is that investors wobbled at the sight of Spotify saying it expects to end the year with between 93 million and 96 million premium subscribers, when three months ago it had predicted between 93 million and 97 million for year-end. That revision downwards at the high end seems to have spooked Wall Street. Suggestions by the management team that it is facing challenges hiring engineers and thus investing in R&D also appear to have played a part in the market’s reaction to the results.
The tension here may be between Spotify’s long-term vision (currently presented as its ‘two-sided marketplace’ strategy) and the pressure / expectations from investors of big, disruptive ideas. Witness the recent announcement of Spotify’s direct-uploads tool for artists, which saw its share price rise while at the same time opening a new fault-line with its major-label licensing partners. Balancing these two constituencies while continuing to build a business that will be sustainable? It should be eminently clear why the ‘exit’ of going public was not the celebratory ending to Spotify’s startup story, but rather the staging post to new challenges and intense pressures that will tax its team more than ever.
Big ideas, though? The question was raised in Spotify’s earnings call about whether it might be interested in investing in Universal Music Group, following the label’s parent company Vivendi’s decision to seek external investment. CEO Daniel Ek declined to answer. But you can see that steady subscriptions growth, a drive towards profitability and plenty of new tools for artists and labels – while these may be what our industry is looking for – may not be enough to avoid the bumpy seas on Wall Street. That’s part of the territory of being a public company, but it will still be important for Spotify to plot a careful course while holding its nerve.
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