Spotify shares tumble after warning of uncertainty ahead

We reported yesterday on Spotify’s latest financial results, including decent growth in users, subscribers and revenues. Yet by the end of the day, the company was worth $5.37bn less than the day before, as its share price fell by 8.2%. Caveat: that still means a market cap of $60.15bn, more than double what Spotify was worth a year ago.

What spooked the markets appears to have been Spotify’s warning about 2021. “Looking ahead, we are optimistic about the underlying trends in the business into 2021 and beyond, however, we face increased forecasting uncertainty versus prior years due to the unknown duration of the pandemic and its ongoing effect on user, subscriber, and revenue growth,” as the company put it.

Having added 74 million net new monthly active users and 30 million net new premium subscribers in 2020, Spotify is predicting that it will add 62-82 million users and 17-29 million subscribers in 2021. Cue the share-price drop.

As ever with these things, the initial knee-jerk response to earnings (whether good or bad) is less important than the more measured response in the following days and weeks. Spotify also announced plans for a virtual event called ‘Stream On’ on 22 February, which it says will “share the latest on the state of global audio streaming and where it’s headed in the future”. The company will be hoping a sufficiently big vision will reassure investors.

CEO Daniel Ek and CFO Paul Vogel fielded analysts’ questions in Spotify’s earnings call yesterday. Among the highlights:

– Ek saying that “we are shifting to drive more aggressive revenue growth, where we know our pricing power will enable us to increase ARPU” – something that will be welcomed by music rightsholders who’ve been agitating for Spotify to speed up its price increases. “We have seen very, very positive response from the price increases in October, and we believe that will be the same for the price increases that we just concluded,” added Ek.

– Spotify could make its own Clubhouse. Well, it’s kicking the tyres of that kind of idea. “I think we are in the early innings of the innovation of the audio formats, and creator to fan interactivity is definitely one of those things that we are paying attention to and looking at. And we are conducting experiments on it already,” said Ek. “But I don’t have any sort of specific here to announce.”

– Ek also hinted that Spotify is exploring the potential both for a subscription model for podcasts, and a more hands-on role in livestreams than the current listings feature pointing fans to off-platform events. “Long term, our strategy, as I said, is to allow those creators to fan engagements to happen on the platform, in an even greater extent,” he said.

One more thing. In an interview with Variety, Ek offered his first public comments on the furore sparked by his Music Ally interview last July about artists and release cycles. “I meant exactly what you just said in your question — that it’s important to continue the engagement between artist and consumer,” he said. “I did not mean to imply that people need to work harder or crank out ten albums a year. It’s very difficult sometimes to be as eloquent as you can be in a five-minute conversation before an earnings call — like this one, as well! — and I probably could have phrased it a lot better than I did.”