Third, consumer internet stocks have been hammered over the last few weeks. The way it plans to monetize these investments is through advertising. Spotify has made over $1 billion worth of investments into podcast content over the last few years. Its results were hindered by the closure of its Russia operations in response to that nation's invasion of Ukraine, but this pattern could be concerning if it continues over the next few quarters. Second, Spotify's advertising-supported revenue growth was a bit weak in Q1 - only 31% year over year. However, so far, that margin expansion hasn't materialized, and it is likely that many investors are doubting whether those numbers are achievable. That would help the company finally generate consistent net profits and cash flow. Over the long term, executives think Spotify can achieve gross margins in the 30% to 40% range.

Gross margins were 25.2% in Q1, down from 25.5% in the prior-year period. First, Spotify is not seeing any leverage on the gross margin line, though management promised that was coming due to its investments into podcast content and advertising. Meanwhile, Ek claimed, Netflix faces much more intense competition in video streaming than Spotify does in audio.Three issues may have been driving that negativity. Spotify is largely in the content-licensing business, he said, while Netflix’s spending skews significantly more toward original and exclusive shows and movies.

“I’ve said this before, but I’ll say it again: besides both being media companies and being primarily subscription-revenue companies, that’s kind of where the similarities end for me.” “I think a lot of people are grouping us and Netflix together,” Ek told investors. On the company’s earning call, Spotify CEO Daniel Ek tried to discourage comparisons between his company and Netflix, which in Q1 posted its first decline in subscribers in more than a decade and signaled that the company may be bumping up against a growth ceiling. Spotify forecast 187 million paid subscribers for Q2, which was below Wall Street expectations of 188.9 million for the period, per FactSet. Click here to sign up for Variety’s free Strictly Business newsletter covering earnings, financial and investment news, and more.

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