Spotify Technology SA (NYSE:SPOT), the world's most popular paid music streaming service, reported for the third quarter its first-ever profit Thursday, thanks to its investment in Chinese music-streaming service Tencent Music Entertainment Group (OTCMKTS:TCEHY).
But investors sent shares of the company down 7.8% to $137.89 in morning trade as the company will likely swing back to a loss in the fourth quarter. It also damped its subscriber-growth guidance for the period.
The company tightened its expectations for full-year 2018 monthly active listeners to between 199 million and 206 million users. Analysts had forecast 208 million users by the end of the year. Premium subscribers totaled 87 million at the end of the third quarter.
For the quarter ended September 2018, the Stockholm-based company reported a profit of €43 million ($48.7 million), or €0.23 a share, compared with its loss of €278 million, or €1.84 a share, in the year-earlier quarter.
Spotify attributed the profit to a one-time €125 million tax windfall related to a change in the value of its investment in China’s Tencent Music.
The two companies announced a stake swap in December 2017. Tencent recently delayed its $2 billion US IPO due to market tumult. The IPO filing meant Tencent Music publicly detailed its value, which in turn meant Spotify needed to adjust how much it values its own investment in Tencent Music. That resulted in a tax benefit, which pulled Spotify into a quarterly profit for the first time ever.
Spotify previously warned such a profit would be a “one-time, non-recurring event” and expects to return to a net loss in subsequent quarters.
Contact Uttara Choudhury at [email protected]