Spotify Crashes 11%: Soaring Payroll Taxes Trigger Profit Warning

TradingKey - On July 29, streaming giant Spotify(SPOT) projected lower-than-expected quarterly profits due to elevated payroll tax burdens linked to employee compensation, triggering an immediate over 11% intraday plunge in its share price at market open.

(Source: TradingKey)

Over the past 12 months, Spotify’s strategy of expanding its video content library successfully broadened its user base, driving its stock price to double during this period.

However, the rising share price directly increased costs for stock-based employee compensation, subsequently triggering higher payroll tax liabilities.

In Q2, Spotify incurred €116 million (US$133.62 million) in "social security contributions" (a payroll tax tied to employee compensation), €98 million higher than initially forecast.

This tax pressure, combined with surging stock-based compensation expenses, resulted in a Q2 net loss of 42 cents per share, reversing from €1.33 earnings per share in the same period last year.

Despite implementing multiple cost-cutting measures in recent years, the company’s Q2 operating expenses still rose 8% year-over-year, partially offsetting double-digit growth in premium subscription revenue and further compressing profit margins.