Spotify Drops 10 Percent Despite Unexpected Q3 Profit

Underwhelming subscriber projections and a decrease in average revenue per user dings streaming giant

An unexpected quarterly profit — the first in the company’s history — wasn’t enough for Spotify to please Wall Street, after the music streaming giant posted tepid user and revenue growth when it reported its Q3 earnings on Thursday.

The Stockholm-based company announced earnings per share of €0.23 ($0.26) — running past analyst expectations of a loss of €0.24 ($0.26) per share. Revenue slightly beat analyst estimates, increasing 31 percent year-over-year to €1.35 billion ($1.54 billion), compared to estimates of €1.33 billion ($1.52 billion). Spotify posted a profit of €43 million, or about $49 million.

Spotify gained 4 million premium subscribers during the quarter — falling between the 2 to 5 million new paying customers the company had projected –hitting 87 million overall. The world’s biggest paid music service now has 191 million monthly users, an increase of 28 percent year over year.

Despite beating analyst expectations on financials and posting subscriber growth within its projections, shares of Spotify were rocked in early-morning trading, dropping 10 percent to about $135 per share. Spotify opened at $165.90 per share when it went public in April.

So what gives? Well, Spotify doesn’t anticipate it’ll churn out routine quarterly profits moving forward. Spotify’s boost came from its stake in Tencent Music Entertainment, following the Chinese conglomerate filing to go public earlier this month. The company had previously said turning a profit would be a “one-time, nonrecurring event.”

Spotify also reduced expectations for the fourth quarter, projecting it’ll hit between 93 million and 96 million for paying subscribers — after the company had initially guided for up to 97 million premium subs earlier in the year. Average revenue per user also dipped 6 percent to €4.73 ($5.39) per user, indicating the newer subscribers are joining on college or family plans.