Spotify Stock Drops After Earnings. What Higher Prices Did to Growth.

Spotify is the dominant music-streaming platform. (Photograph by Chris Ratcliffe/Bloomberg)

Key Points

• Spotify’s third-quarter net income rose to 899 million euros, exceeding analysts’ expectations.
• Monthly active users increased by 11% to 713 million, surpassing the company’s forecasts. The number of premium subscribers grew 12%.
• The company projects that by year end, monthly active users will reach 745 million and premium subscribers will total 289 million.

Spotify Technology was falling early on Tuesday. Investors looked to be taking profits from the stock’s recent surge, even as earnings and user growth beat expectations.

Spotify reported a net income of 899 million euros ($1.03 billion)—or €3.28 per share, up from €300 million, or €1.45 per share, a year earlier. Analysts were expecting a profit of roughly €1.96 a share for the third quarter this year, according to a FactSet survey. Revenue climbed 12% to €4.3 billion.

Spotify remains the dominant music streaming platform over rival services from Amazon.com , Apple , and France’s Deezer .

It increased its monthly active users by 11% to 713 million, topping the company’s prior guidance of 710 million. Premium subscribers rose by 12% to 281 million, in line with expectations.

Spotify announced price increases in August for premium subscribers in multiple markets across South Asia, the Middle East, Africa, Europe, Latin America, and the Asia-Pacific region. But this didn’t seem to have much of a negative impact.

“We think this demonstrates the platform’s continued global dominance in music streaming with impressive margin expansion, as gross margins reached 31.6%… exceeding guidance,” wrote Kenneth Leon, research director at CFRA Research.

American depositary receipts of the Swedish company were down 3.5% in morning trading. The wider market was also falling: The S&P 500 lost 0.6%.

The ADRs have climbed 44% this year so far through to Monday’s close but were hit at the end of September when founder Daniel Ek said he would step down as CEO of the music-streaming platform at the end of the year.

Spotify expects monthly active users to grow to 745 million and premium subscribers to reach 289 million by the end of the current quarter. Management has forecast quarterly revenue of €4.5 billion.

Write to Adam Clark at adam.clark@barrons.com