Why Spotify Stock Plummeted This Week

Shares of audio-streaming behemoth Spotify Technology (NYSE: SPOT) are down 14% this week as of 3 p.m. ET on Thursday following the company's first-quarter earnings report on Tuesday. Spotify grew sales, free cash flow (FCF), and premium subscribers by 8%, 54%, and 9%, respectively, exceeding Wall Street's expectations. However, the company guided for total premium subscribers to grow only from 293 million to 299 million in Q2 -- below the analysts' consensus of 300 million -- helping spur this week's sell-off. Further contributing to the drop, Spotify's ad-supported revenue declined 5%, despite ad-supported monthly active users (MAUs) growing by 14%.

While these are certainly flaws in Spotify's otherwise excellent earnings report, I don't think investors should fret over either issue. First, Spotify's slowing premium subscriber guidance isn't a death knell. The company is slowly becoming a victim of its own success, much as Meta Platforms and Netflix ballooned to sky-high user counts in a short period of time. It simply cannot go on in perpetuity. The next chapter of Spotify's growth story comes from its MAUs, subscribers, and average revenue per user (ARPU) slowly inching higher, while the company expands into promising new categories, as it did with video podcasts and audiobooks. For reference, ARPU rose 6% year over year in Q1.

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Source Fool.com