Picture: REUTERS
Picture: REUTERS

Los Angeles — Spotify Technology acquired The Ringer this week in a bid to further expand beyond music and capture more podcast growth.

The company also offered a first-quarter financial outlook short of Wall Street’s expectations on Wednesday, raising concerns about its expected return to profitability in 2020. Fourth-quarter revenue missed estimates as well.

The world’s largest streaming audio service said it expects a first-quarter loss of €65m to €115m, wider than the estimate of €53.5m as compiled by Bloomberg.

Spotify shares fell as much as 5.8%, the most since August, to $145.36 in New York trading on Wednesday. The stock has climbed 11% in the past 12 months, underperforming the S&P 500 index.

Spotify reported a loss of €1.14 a share for the quarter, swinging from a profit a year earlier. It has been losing money because it pays out the majority of its revenue to record labels and other music owners. The company is investing in podcasting to improve its profitability.

The podcasting push took a step forward on Tuesday with Spotify’s announcement that it is acquiring The Ringer, the sports and entertainment website founded by former ESPN personality Bill Simmons, for undisclosed terms. The Ringer has a popular set of podcasts, the site’s main appeal to Spotify as it expands its sports offerings.

To justify more investment in podcasts, Spotify CEO Daniel Ek, speaking on an earnings webcast on Wednesday, said podcast listener growth is up 200% for the year. He said The Ringer will help capitalise on that trend, comparing it to an audio version of Walt Disney’s ESPN network.

“We bought the next ESPN and we think that’s going to be a tremendously valuable property as we look at the development of sports over the next decade, and the billions of people that will start listening to audio,” Ek, who co-founded Spotify, said on the webcast.

‘Appropriately conservative’

While Spotify expects to continue growth in monthly active users and premium subscribers, it said in a statement, “We have been appropriately conservative regarding our 2020 guidance as our data, particularly around the benefits from podcasts, is still reasonably new.”

The Stockholm-based company said it added 23-million monthly active users in the fourth quarter of 2019, beating the consensus forecast and setting a record for its annual growth. For all of 2019, Spotify signed up 64-million new customers, far more than the 25-million added in 2018.

While more than 140-million of Spotify’s customers use its free, advertising-supported service, the company has struggled to attract sponsors.

Europe and North America are Spotify’s base, accounting for more than 60% of subscribers. In the fourth quarter, “growth re-accelerated across three of our largest regions, North America, Europe and LatAm,” Ek said on the webcast. The comments were aimed at concerns that Spotify’s future growth depends on new markets such as Latin America and Asia.

Bloomberg