Business Corpus: Spotify Stock Drops As Promotions Hurt Average Revenue Per UserSpotify stock fell Thursday after the streaming music service said average revenue per user declined 6% year over year because of promotions. The post Spotify Stock Drops As Promotions Hurt Average Revenue Per User appeared first on Investor's Business Daily.

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Streaming music service Spotify Technology (SPOT) early Thursday met its forecast for paying subscribers and other metrics for the third quarter. But average revenue per user continued to decline because of promotions. That sent Spotify stock down on Thursday.

Spotify said 4 million new paying subscribers joined the service in the September quarter, in line with its target. It ended the period with 87 million premium subscribers worldwide, up 40% year over year.

Spotify earnings showed an operating loss of $7 million on sales of $1.57 billion in the third quarter. Its revenue rose 31% year over year in local currency. Spotify earnings are reported in euros.

"The quarter was largely in line with our expectations and our guidance range, except that operating margin outperformed our forecast," the company said in a letter to shareholders.

Spotify earned an adjusted 27 cents a share in the third quarter. Analysts had predicted it would lose 33 cents a share on sales of $1.56 billion.

Guggenheim analyst Michael Morris was enthused by better-than-expected Spotify earnings and sales. In a note to clients Thursday, he reiterated his buy rating and price target of 210.

Spotify stock tumbled 5.7% to 141.16 on the stock market today. The Stockholm-based company went public on April 3, starting at 165.90. Spotify stock hit a record high of 198.99 on July 26. It notched a record low of 131.01 on Tuesday.

Spotify Earnings: Average Revenue Per User Down 6%

It reported 109 million monthly active users of its advertising-supported streaming music service. That's up by 8 million from the second quarter. On a year-over-year basis, the number of ad-supported service users rose 20%.

In total, Spotify claimed 191 million monthly active users in the September quarter, up 11 million from the June quarter.

Average revenue per user fell 6% year over year to the equivalent of $5.50 in the third quarter. In the second quarter, it fell 12% year over year to $5.83.

To boost its paying subscriber base, Spotify is offering low-cost student and family plans and other promotions. Subscriber growth in Latin America, Southeast Asia and other newly launched markets also is putting downward pressure on average revenue per user.

Spotify Guides Below Views For Fourth-Quarter

For the current quarter, Spotify expects to add 7.5 million new paying subscribers. It forecast total monthly active users of about 203 million in the fourth quarter.

Spotify expects to lose $11.4 million on sales of $1.65 billion in the December quarter. It didn't give a target for earnings per share. Wall Street was modeling it to lose 47 cents a share on sales of $1.69 billion in the fourth quarter.

Spotify competes with Apple (AAPL), Amazon.com (AMZN), Alphabet's (GOOGL) Google and others in the streaming music business.

Spotify Stock Downgraded To Neutral

Spotify's fourth-quarter subscriber outlook is a "modest disappointment," Evercore ISI analyst Anthony DiClemente said in a report.

He lowered his rating on Spotify stock to a neutral rating from buy.

"Without acceleration in users it's hard to see SPOT outperforming in the near-term," he said. "The market is taking a clearly more cautious view on high multiple, long-term TAM (total addressable market) growth stories."

He slashed his price target to 155 from 210.

The post Spotify Stock Drops As Promotions Hurt Average Revenue Per User appeared first on Investor's Business Daily.