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Slow ad growth and Spotify’s profit margins are causing a slump in stock prices By Stocksak

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© Stocksak. FILE PHOTO – A screen showing the Spotify logo on the New York Stock Exchange floor (NYSE) in New York on May 3, 2018, U.S.A. REUTERS/Brendan McDermid

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By Dawn Chmielewski

(Stocksak). -Spotify Technology SA said Tuesday that third-quarter profit margins were cut by slow advertising growth. This raises concerns about the impact of the weak global economy on digital advertising. Spotify (NYSE:) shares fell 4% after-hours trading. This was due to sector-wide weakness, as Google parent Alphabet Inc (NASDAQ:) Inc missed market expectations for quarterly revenue. Advertisers cut spending.

Spotify, whose stock dropped 58.5% in this year’s third quarter, blamed “some softness” in advertising, currency fluctuations and retroactive royalties payments to music publishers and songwriters.

Spotify CEO Daniel Ek stated to Stocksak that this is an indication of the concern businesses have about the economy. “We’re not concerned long term, but it’s definitely impacting us in short term, and it contributed to the gross margin hit that we had this quarter, too.”

Spotify’s monthly active users grew to 456million in the third quarter. This was an increase of 23 million users in just three months, which beat Spotify’s forecasts and analysts’ predictions of 448.6million.

Premium subscribers, which account for the majority of the company’s revenues, increased 13% to 195 millions, surpassing analyst estimates of 194million.

Spotify’s ad income increased 19% to 385 million euro ($383.7 million) in the quarter. This was in addition to double-digit growth in all regions, except Europe, where Spotify stated it felt the effects of difficult economic conditions.

Investors worry that entertainment spending could suffer from the recession fears, Russia’s invasion in Ukraine, rising interest rate and the pandemic.

Spotify revenue for the 3rd quarter was 3Billion Euros ($3 Billion), up 21% compared to the same period last year. Analyst estimates of 3Billion Euros ($3 Billion) are consistent with IBES data from Refinitiv.

The company reported that gross margins fell below expectations to 24.7%. This was due in part to softness within the ad market, and a large publishing contract outside the United States.

Spotify reported a quarterly operating loss in the quarter of 228 million euros ($227.3million). This was higher than analyst projections of 166.6 million euros ($167.9million).

The company forecasted that it would reach 479million monthly active users in the fourth quarter. This is 23 million more than the previous three months. It projected that 7 million premium subscribers would be added, bringing the total to 200 million.

The fourth quarter revenue would be 3.2 billion euros ($3.18 trillion), with an operating loss in excess of 300 million euros ($298.8million).

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Stocksak Editorial

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