Spotify has been expanding its library of video content to attract subscribers, a bet that has helped shares more than double in value.Brendan McDermid/Reuters
Spotify Technology SA SPOT-N forecast quarterly profit below estimate on Tuesday, as higher taxes related to employee salaries outweigh music streaming demand, sending its high-flying shares down 11 per cent.
Investors are closely monitoring the Swedish company’s profitability after price hikes and cost-cutting efforts in recent years helped it achieve its first annual profit for 2024.
Spotify has also been expanding its library of video content to attract subscribers, a bet that has helped shares more than double in value in the past 12 months. But the higher stock price has led to a jump in payroll taxes linked to employee compensation, hampering profit.
Netflix holds talks with Spotify to expand live TV content, report says
Such taxes, called social charges, totalled €116-million (US$133.62-million) in the second quarter. That caused Spotify to post a 42-cent-per-share loss, compared with a €1.33 profit a year ago.
The company signalled the trend would continue in the third quarter, forecasting an operating income of €485-million euros. That is below analysts’ estimate of €562-million, according to data compiled by LSEG.
Spotify’s revenue forecast of €4.2-billion was also below the estimate of €4.48-billion, while the monthly active users (MAU) projection of 710 million came in line with the estimate. Its prediction for a 5 million increase in premium subscribers to 281 million was above a Visible Alpha estimate of 279 million.
The company began investing in video podcasts in 2020 after buying podcast networks Gimlet Media and Anchor FM. Last year, it signed a new multiyear deal with podcaster Joe Rogan.
“We have now added more than 400,000 video podcasts ... more people are consuming video on the platform,” CEO Daniel Ek told Reuters.
Spotify’s premium subscribers rose 12 per cent to 276 million in the second quarter, beating a Visible Alpha estimate of 273 million. MAU additions of 18 million brought the total to 696 million.
Revenue rose 10 per cent to €4.19-billion, but missed the estimate of €4.26-billion due to an unfavourable currency impact of about 440 basis points.