Spotify (SPOT.US) Q2 performance disappoints, stock price falls over 11% marking the largest single-day drop in two years.

Music streaming platform Spotify (SPOT.US) saw its stock price fall by more than 11% on Tuesday, marking the largest single-day drop since July 2023. This was following the company's announcement of lower-than-expected second-quarter performance and third-quarter guidance. Data showed that the company's Q2 revenue was 4.19 billion euros, a 10% year-on-year increase, but below the market's expectation of 4.26 billion euros; net loss was 86 million euros, compared to a net profit of 225 million euros in the same period last year; loss per share was 0.42 euros, while the market expected earnings per share of 1.90 euros. Spotify stated that increased personnel, marketing, and professional service costs, as well as 115 million euros in social costs, weighed down on overall performance. Spotify forecasted that third-quarter revenue would reach 4.2 billion euros, falling short of the market's expectation of 4.47 billion euros. Spotify noted that this forecast took into account the adverse impact of a 490 basis point due to exchange rate fluctuations. The platform's monthly active users grew by 11% to reach 696 million, while paying users increased by 12% year-on-year to reach 276 million. Subscription users for ad-supported plans accounted for over 60% of Spotify's monthly active users. Spotify projected that third-quarter monthly active users would reach 710 million, with a net addition of 14 million users. The company expects to add 5 million paying users in the third quarter, bringing the total number to 281 million. Spotify's ad revenue decreased by about 1% to 453 million euros. The company stated that given its vast user base, its ad portfolio and demand outlook are strong, and it will focus on promotion and new tools in the second half of the year. Some areas with growth potential include commercial advertising and automated advertising. CEO Daniel Ek said during the earnings call, "This is actually an execution challenge and not a strategic challenge. While I am not satisfied with the current situation, I am still confident in our ambitious goals that we have set, and we are taking swift actions to ensure we are on the right track." Ek mentioned that the company is seeing some "encouraging signs" in its programmatic business. In 2024, Spotify achieved its first full-year profit, thanks to cost-cutting and pricing strategies. Over the years, the company has prioritized user growth and invested in areas beyond music such as podcasts and audio content. Apple Music remains one of its main competitors. As of the second quarter, Spotify had over 7,300 full-time employees and increased its stock buyback program by 1 billion US dollars. The company's stock has risen by over 40% since the beginning of this year.