Report: Spotify Discounting Sub Fees For New Customers

Spotify Technology SA missed the beat on Wednesday. The streaming music leader fell short of investor hopes that it could turn free music listeners into paying subscribers at a faster clip, and its shares dropped as much as 9 percent.

According to Reuters, shares had run up 3 percent in regular trading ahead of its first report as a public company, and analysts said expectations may have become overblown. They voiced concerns that discounts were eating into the company’s average revenue per user. First-quarter revenue also fell shy of analysts’ average forecasts.

The Swedish company, which began trading in an unorthodox direct listing on the New York Stock Exchange in April, reported steady growth by most financial measures but failed to deliver the commanding performance that could justify the bullish stock recommendations published in the days ahead of the results.

Spotify said paid subscriptions for the second quarter would range between 79 million and 83 million, which at the midpoint was below Wall Street’s consensus forecast of 81.79 million, according to Thomson Reuters I/B/E/S.

Morningstar analyst Ali Mogharabi said Spotify appears to be discounting many full-price music subscriptions and extending the length of free-trial plans to convert free, advertising supported users into paying subscribers.

“It looks like there may be too many discounts and too high a percentage of premium subs may be in for the cheaper family and student plans,” Mogharabi said.

Spotify reported first-quarter revenue of 1.139 billion euros ($1.36 billion), up 26 percent from a year earlier, or 37 percent excluding currency effects.

Spotify, which launched its streaming music service a decade ago, has enjoyed a surge in subscriber growth only in recent years. Since launching in 2015, Apple Music has grown rapidly to 40 million paid users and 8 million trial users and is looking to overtake Spotify in the lucrative North American market.

Amazon Music, the No. 3 player in the global streaming music outside China, does not disclose exact figures but reported last week it had “tens of millions of paid customers” and that subscriptions grew more than 100 percent in the last six months.