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Live Earnings Analysis: Spotify (NYSE: SPOT) Sinks After Weak Guidance

By Eric Bleeker · Updated Jul 29, 2:43pm ET · Published Jul 29, 7:40am ET

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Spotify Still Down 10%

Eric Bleeker

Spotify shares haven’t recovered today and are still down about 10%. The bottom line is that the stock was extremely expensive headed into earnings, which raises expectations. With the company guiding to revenue being largely flat sequentially, that’s not good enough for a stock trading for 35X 2028 earnings.

The ‘story’ for Spotify doesn’t appear to be broken, but this was an opportunity for investors to take profits from a stock that’s been steadily rising since the end of 2022.

Spotify Sinking

Eric Bleeker

Spotify is now trading after the opening bell, and its share price is back to where it was after earnings were first announced. Spotify shares are down a little less than 10% shortly before 10 a.m. ET.

Investors clearly are concerned by the company’s weak guidance, especially as it trades for a premium valuation

Spotify Whipsawing In Premarket Trading

Eric Bleeker

Spotify shares traded down nearly 10% immediately following their earnings release, then they rebounded to down 3.5%, and are now trading down nearly 6%.

There’s a lot ot take in with these earnings. How much of the weak revenue guide is impacted by currency movements, for example? And how does Wall Street weigh positive factors like strong free cash flow and premium subscriber growth versus negatives like revenue guidance?

For now, it appears the negatives are outweighing the positives as shares are trending lower.

Softer Than Expected Outlook

Eric Bleeker

We looked into Spotify’s Q2 below, which was mixed (weak revenue and EPS last quarter, but strong free cash flow and subscriber numbers).

Let’s look at their guidance now.

The company guided to:

  • 710 Million MAUs
  • 281 million Premium Subscribers (an addition of 5 million net new subscribers this quarter)
  • Revenue of €4.2 billion
  • 31.1% gross margins
  • And €485 million in operating income

The number that Wall Street will be focused on is the revenue figure which is once again broadly disappointing. Wall Street had modeled in €4.47 billion in revenue last quarter, but Spotify is guiding to €4.2 billion, which is largely flat sequentially.

Live coverage has ended. The full story is below.

Full Coverage

The story so far

Spotify (NYSE: SPOT | SPOT Price Prediction) earnings are out, and the market doesn’t like what it sees. Shares are down 3.5% in premarket trading as of 7:25 a.m., and had traded down 5% immediately after the company’s earnings release. 

Alongside Netflix (Nasdaq: NFLX), investors had rushed to Spotify as a safe haven stock as tariffs dominated the headlines. Companies that sell subscription services that are digital are generally far more insulated from fallout during trade disputes. In addition, the company has been steadily building its subscriber base and investors have been willing to pay a higher and higher multiple for Spotify. 

Heading into today, Wall Street was expecting $9.79 in adjusted earnings this year for Spotify and the stock traded for $700.98 per share. That’s a multiple of more than 70X this year’s earnings. Looking at further, Spotify was trading for about 35X 2028 earnings. 

Any way you slice that, Spotify was trading for a premium multiple, so earnings had to be very good for the company’s stock to keep rising. 

What Did Spotify Report This Morning?

  • Operating Income came in at €406 million, which was below Wall Street expectations of €481.7 million. 
  • Revenue was €4.193 billion, which was below expectations of €4.265 billion 
  • Free cash flow did beat, however, hitting €709 million versus expectations of €648 million.  

So, earnings were mixed. Some surface-level figures like EPS of -€.42 were very disappointing; however, free cash flow was strong. In addition, subscriber growth of 8 million premium subscribers was solid and surpassed Wall Street expectations. 

Contact [email protected] for any questions or corrections.

Eric Bleeker

Eric Bleeker has been investing for more than 20 years. He began his career working at Microsoft before joining Motley Fool, one of the largest publishers of financial research. In his 15 years at Motley Fool Eric served as the General Manager for Fool.com and led coverage in the Technology & Telecom sector. In addition, he was a featured columnist and has hosted dozens of investing seminars attended by more than a million total investors. Eric has more than 1,000 financial bylines to his name and has been featured in The Wall Street Journal, CNBC, Fox Business, and many other leading publications. He is currently focused on artificial intelligence investing and is a CFA Charterholoder.

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