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What Spotify’s Increasing Gross Margin Suggests

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Spotify’s revenues grew 26.3%, but Wall Street was disappointed

On May 2, music streaming company Spotify (SPOT) announced its first quarterly report since going public last month. Spotify generated revenues of ~1.1 billion euros (~$1.4 billion) in 1Q18, growing 26.3% from 1Q17. The company expects to generate 1.1 billion–1.4 billion euros in 2Q18.

The company posted a net loss of 169.0 million euros ($202.0 million) in 1Q18, slightly lower than its net loss of 173.0 million euros in 1Q17. The company is currently prioritizing growth over profit.

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Spotify’s gross margin is increasing

However, Spotify’s revenues were slightly lower than Wall Street’s estimate of $1.4 billion. Its stock has declined 11.8% since declaring its results. Its stock has steadily climbed since going public on April 3.

The company’s gross margin was 24.9% in 1Q18, slightly higher than its guidance of 23.0%–24.0%. Spotify’s increasing gross margin is a sign of its increasing bargaining power with music labels.

Spotify’s operating loss stood at 41.0 million euros ($48.9 million), which improved significantly from its 1Q17 operating loss of 131.0 million euros.

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