“We're very disappointed in you, Spotify”

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When Spotify reported its first-ever quarterly earnings after the bell last Wednesday, it must have thought the market reaction would be at least positive.

Having provided guidance on their financial performance a mere six weeks earlier, the Swedish streaming service unsurprisingly met expectations full on, even managing to slightly beat their own forecasts on the operating-loss line.

The market however, wasn't impressed:

Quill Cloud

After a 10-per-cent fall on Thursday, and a bounce over the next two trading days, Spotify's share price closed yesterday at $149.86 -- representing a decline in market capitalisation of around $3bn.

For clarity, here is a summary of Spotify's guidance versus its actual quarterly results.

Quill Cloud

So what happened?

Was it those Pollyanna-esque sell-side analysts, forecasting unobtainable earnings targets for the savior of the music industry?

Not exactly. According to Bloomberg, Spotify was again on point when it came to the forecasts of the thirteen analysts covering the business. It fell short of projections by around $1m revenues, beat gross margin estimates by 134 basis points, and smashed operating profit expectations by $17m. So no clues there.

Mark Mulligan, an analyst at Midia research, has another theory as to why the share price fell. As he told the FT:

They [investors] were disappointed Spotify didn’t pull a rabbit out of their hat... Everything was a clear continuation of what they’ve been reporting.

Right. So investors were expecting Spotify to beat its forecasts from over just a month ago, and were disappointed when it failed to do so, because no-one imagined that it might simply provide realistic forecasts for its short-term business prospects? Seems a bit punitive, as it is hard to move the needle in thirty working days. If you promise to meet a deadline at work, and then meet it, one would expect not to get punished for your troubles.

To be fair, technology investors have been spoiled this quarter. Of the 49 S&P 500 technology businesses that have reported quarterly earnings so far, 92 per cent of them have beaten estimates, with only 2 per cent missing expectations, according to research from Thomson Reuters. So perhaps investors, desensitised to earnings beats in an outperforming tech sector, simply got ahead of themselves despite a lack of information that would suggest otherwise.

Spotify's shares are now close to prices from after its unusual direct listing so there hasn't been much long-term damage done. But Spotify executives might be left scratching their heads about how best to convince investors that their guidance is not the underpromise-and-overdeliver type.

Famously, eBay's share price collapsed by 22 per cent after it missed its fourth quarter earnings expectations in 2004 by 1 cent. Spotify will be hoping that its investor base learns to be a tad more patient as it looks to establish itself as the dominant player in the music-streaming world.

Further Reading:
Spotify shares plunge after first earnings report - FT
Canvassing Spotify's valuation - FT Alphaville
Sony fast out the door at Spotify listing - FT Alphaville

  1. WeWrite-down
  2. No deal Brexit is not a hedge fund conspiracy
  3. Europe’s digital infrastructure issue
  4. Let’s give a helping hand to Andrew Yang
  5. Anatomy of a malware scam
  6. ARK Invest’s Tesla model gathers dust
  7. A delirious defence of Uber
  8. WeLiquid: Adam Neumann pockets $700m
  9. Yesterday, in efficient markets
  10. The warm fuzzy feeling of indirectly owning Tencent
  11. The best of Morgan Stanley's Adam Jonas
  12. Apple/Tesla: M&A and heartbreak
  13. Did Beyonce make $300m from Uber's IPO?
  14. Bitcoin is the 10-year Treasury of our time
  15. High resolution music is a solution looking for a problem
  16. Amazon is furious about this negative review
  17. Missing: $500bn of American savings
  18. Blockchain for Brexit: a wonderfully terrible idea
  19. The Bank of Hodlers [sic] (sigh)
  20. Behind the curtain at China Ding Yi Feng
  21. An answer to Mark Cuban's question
  22. Crumbs! It's CRYPTO: the movie!
  23. National Beverage Corp loses its fizz, and its mind
  24. Amazon won't spin-off Amazon Web Services
  25. Mensch! Dan McCrum is innocent, ok?
  26. Europe's $1 trillion tax gap
  27. Why online propaganda mobs are an investment red flag
  28. Davos has produced an amazing new guide on precisely how not to think about risk
  29. When the public relations industry does PR for itself
  30. Who wants to be crippled by student debt?
  31. The bitcoin price is wrong
  32. The warm fuzzy feeling of Goldman debt
  33. “Cryptoassets” are crashing again. Is it time to start calling them cryptoliabilities instead?
  34. Puff the tragic cryptowagon smokes out the Mumsnet demographic
  35. Don't write off the public sector
  36. Initiative Q: an elementary pyramid scheme with grandiose ideas [Update]
  37. Moral investments aren't outperforming
  38. No one is killing it in crypto (not even Woz)
  39. Too smooth: the red flag at Patisserie Valerie which was missed
  40. No, the housing crisis will not be solved by building more homes
  41. Sorry Civil, 'crypto-economics' and 'constitutions' won't save journalism
  42. 'Short-termism' isn't a thing, say Fed economists
  43. Coinbase wants to be “too big to fail”, lol
  44. Regulation and innovation don't have to be enemies
  45. Retailers get so lonely around the holidays
  46. Folli Follie: $1bn of fake sales, and what to learn from the debacle
  47. The new green evangelism
  48. Tilray, how low can it go?
  49. The ICO behind the tragic Everest stunt is now “airdropping” tokens from rockets
  50. Beware the Hindenburg Omen?
  51. The broken conversation about financial regulation
  52. The improbably profitable, loss-making Blue Prism
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  64. The chance of an inflation shock may be higher than you think
  65. Sorry Tim, the humanity is not being drained out of music
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  67. What could go wrong here?
  68. Sirius Minerals: money for a hole in the ground
  69. The Bank of England has a strange idea of what QE achieved
  70. One for the ladies...
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  83. Nothing But the Shirt on Your Back
  84. Universities of Britain: cosying up to crypto is a bad look
  85. How to make a living in the cult of meritocracy
  86. Spotify: Drake-oil salesmen
  87. Oh, the digital humanity
  88. Sports are not markets, predictions ain't investment
  89. Spot the difference, Steinhoff edition
  90. Larry Robbins, a cautionary tale
  91. The node to serfdom
  92. Carney is down with the crypto kids
  93. Samsonite: inventory, excess baggage, and unresolved questions
  94. It might be a long wait for “the equivalent alternative to ICOs”
  95. Don't blame it on the sunshine
  96. In corporate America, brands develop you
  97. One in ten dollars of US housing were anonymous
  98. Should AT&T worry more about its debt?
  99. Who cares if Elon is incinerating capital?
  100. Let’s not try make 'crypto chicks' a thing
  101. Tokens all the way down
  102. Eight-dimensional chess with Elon Musk
  103. A lopsided trade is a good trade, Italian inflation edition
  104. How to buy Italian fire insurance
  105. Atlas bugged
  106. Inflating inflation
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  117. Bitcoin cash is expanding into the void
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  119. Bond investors do not care if Argentina is solvent in 100 years
  120. Ubiquiti Networks: of cash and borrowed time
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  122. Tesla probably needs to raise capital this year
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  124. Free cash flow to whom?
  125. Hey crypto bros! Journalism ≠ advertising
  126. Human capital and the jobs guarantee
  127. This is a tech bubble, when's the crash?
  128. The magic of adjustments: ebitla-dee-da
  129. FUD, inglorious FUD
  130. A complex analysis reaches same conclusion as simple one: hedge funds suck
  131. The jobs guarantee and human-capital “nationalisation”
  132. These hedge fund numbers can't be right
  133. The Vomiting Camel has escaped from Bitcoin zoo
  134. Lies, damn lies, and charticles
  135. The world doesn't need more Elon Musks
  136. No, Facebook should not become a nonprofit
  137. Sell all crypto and abandon all blockchain
  138. Immutable ledgers meet European data protection
  139. Amazon is not a bubble
  140. Japan's economic miracle
  141. Have you ever meta crypto joke you didn't like?
  142. Delaware should change its rules to let the light in
  143. Who needs the labels anyway?
  144. Baby Boomers want your family to finance a larger share of their retirement
  145. No, America would not benefit from authoritarian central planning
  146. No one needs to buy Tesla
  147. How to win a debate in the cult of meritocracy
  148. Steinhoff International and the case of Pepkor Global Sourcing
  149. Sorry Jack, Bitcoin will not become the global currency
  150. The “academic’s cryptocurrency” is an elegant waste of time
  151. Cigarettes are the vice America needs
  152. Well that’s one reason to buy yen…
  153. Musicians, don't just blame the labels for your lack of dough
  154. Giving stock away to staff doesn't absolve share buybacks
  155. A penny for Macpherson’s thoughts on the nominal anchor
  156. Monopoly and its discontents
  157. A State of Mind
  158. America is not the least protectionist country in the world
  159. This is nuts, when does Netflix crash?
  160. No Bloomberg, the world's richest people did not lose $114bn...
  161. Someone is wrong on the internet, government employee pensions and passive investing edition
  162. Someone is wrong on the internet, possibly fragile
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  164. Someone is wrong on the internet: tontine tokens [Update]
  165. Someone is wrong on the internet, road economics edition
  166. Someone is wrong on the internet, wages and the stock market edition
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