By Eric Auchard and Munsif Vengattil
LONDON/BENGALURU (Reuters) - Spotify Technology SA shares dropped as much as 9 percent after the streaming music leader's subscriber outlook and quarterly revenue fell just short of analyst estimates in its first report as a public company.
Shares had run up 3 percent in regular trading on Wednesday, and analysts said investor expectations may have been overblown and voiced concerns that discounts were eating into the company's average revenue per user.
Spotify said paid subscriptions for the second quarter would range between 79 million and 83 million, which at the midpoint was below Wall Street's consensus forecast of 81.79 million, according to Thomson Reuters I/B/E/S.
Morningstar analyst Ali Mogharabi said Spotify appears to be discounting many full-price music subscriptions and extending the length of free-trial plans to convert free, advertising supported users into paying subscribers.
Average revenue per user in the first quarter fell to 4.72 euros, down from around 6.84 euros towards the end of 2015.
"It looks like there may be too many discounts and too high a percentage of premium subs may be in for the cheaper family and student plans," Mogharabi said.
The Swedish company, which began trading in an unorthodox direct listing on the New York Stock Exchange in April, was the victim of investor enthusiasm, after a flood of bullish stock recommendations were published in the days ahead of the results.
Shares of Spotify ran up 14 percent from their first day of trade a month ago, closing at $170 ahead of the quarterly report. The stock was trading at $156.41, down 8 percent at 2200 GMT/1800 ET on Wednesday.
Spotify reported first-quarter revenue of 1.139 billion euros ($1.36 billion), up 26 percent from a year earlier, or 37 percent excluding currency effects.
The revenue was broadly in line with the 1.10 billion euros to 1.15 billion euros the company had forecast but just short of the 1.143 billion euro consensus estimate among 13 analysts.
"Results and guidance are pretty much exactly in line with expectations, but the stock reaction clearly suggests investors were hoping for a little more," Atlantic Equities analyst James Cordwell said.
One soft spot was slow growth in North America, Cordwell said, which despite Spotify's global reach could be seen as a gauge for how well it is competing for subscriptions with Apple Inc and Amazon.com Inc.
Spotify, which launched its streaming music service a decade ago, has enjoyed a surge in subscriber growth only in recent years. Since launching in 2015, Apple Music has grown rapidly to 40 million paid users and 8 million trial users and is looking to overtake Spotify in the lucrative North American market.
Amazon Music, the No. 3 player in the global streaming music outside China, does not disclose exact figures, but reported last week it had "tens of millions of paid customers" and that subscriptions grew more than 100 percent in the last six months.
The Swedish company said it expected revenue for the second quarter of between 1.1 billion and 1.3 billion euros, up 10 percent to 29 percent year on year, including foreign currency fluctuations. Excluding currency effects, Spotify expects revenue growth of 20 percent to 38 percent.
It projected gross margins of between 24 percent and 26 percent, roughly in line with the 24.9 percent margin it reported in first quarter.
Spotify kept its outlook for full year 2018 unchanged, with monthly active users rising to between 198 million and 208 million.
It posted a first-quarter operating loss of 41 million euros, a sharp improvement from a loss of 139 million euros a year ago.
Spotify said it had 170 million active monthly users at the end of March, up 30 percent from the year-ago quarter.
This included 75 million paying subscribers, up 45 percent year-on-year, from which the company generates the vast majority of its revenue.
The 75 million subscriber figure was slightly above the 74.43 million consensus estimate of analysts polled by Thomson Reuters.
Revenue from free, advertising-supported services which Spotify uses to woo new listeners to the service in order to eventually convert them to paying members, grew to 102 million euros in the first quarter, up 38 percent, year-over year. Advertising sales are a tenth of what it makes from subscribers.
(Reporting by Eric Auchard in London and Munsif Vengattil in Bengaluru; Additional reporting by Olof Swahnberg and Helena Soderpalm in Stockholm; Editing by Bill Rigby and Meredith Mazzilli)