Spotify sinks after an unexpected tax hit stretches its losses

Ilya S. Savenok/Getty Images/Spotify

Spotify CEO Daniel Ek

• Spotify posted a larger-than-expected loss on Thursday partially fueled by an unexpected tax hit in Sweden.
• Shares sank as much as 5.6% before rebounding to trade down roughly 1% ahead of the opening bell.
• Follow Spotify's stock price in real-time here.

Shares of Spotify sank as much as 5.6% in early trading Thursday following a second consecutive earnings disappointment by the newly public streaming company.

For the second quarter, Spotify said it lost €2.2 per share ($2.58) where analysts polled by Bloomberg had expected a much smaller loss of €0.63 ($0.74). Much of the operating loss came from an unexpected €32 million "social tax" accrued in its home country of Sweden, it said, larger than its forecast €8 million.

Total revenue and user growth topped or matched Wall Street expectations, but weren't enough to offset the overall disappointment. Gross income was €1.27 billion ($1.491 billion), inline with the analyst anticipations. Total subscribers came in at 180 million where Wall Street had expected 178.5 million.

Thursday's results are the second time in as many earnings reports for Spotify, which went public through a so-called direct listing in April, that share prices fell despite beating on many metrics.

"If the slowdown continues we'd miss our guidance expectations and that would be a cause for concern," Barry McCarthy, Spotify's chief financial officer, said in an interview with reporters, according to Bloomberg.

Margins, however, are improving, the company said in a letter to its shareholders. Overall margin was 25.8%, up from 24.9% in the poor quarter. Premium margins - fueled by growth of the company's premium subscriber base - reached 26.9% from 26.1% in the precious quarter.

"Over the long run our goal is to manage the consolidated business to 30%+ gross margins," he wrote. "Those goals are informed by a vision for building a two-sided marketplace where millions of artists can reach millions of fans. To succeed, we said we need to help more artists connect with more fans. The path to success involves building services and tools for labels and artists focused on promotion, marketing, and career management."

Shares of the company have gained 37% from their original listing price of $132 on April 3. Investors appear to have largely forgiven the heavy losses so long as the company continues to add subscribers - similar to many of its streaming competitors including YouTube, Amazon, and Apple. The stock first traded at $165.90.

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