Key Takeaways
Spotify Technology S.A. is facing at least two securities fraud investigations after its disappointing subscriber forecast for the second quarter caused its stock to drop more than 12 percent.
The Schall Law Firm and Pomerantz LLP separately announced they are investigating claims on behalf of investors for violations of securities laws, focusing on whether the company issued misleading statements. "The investigation focuses on whether the Company issued false and/or misleading statements and/or failed to disclose information pertinent to investors," The Schall Law Firm said in a release.
On April 28, Spotify projected its premium subscribers would reach 299 million in the second quarter, missing consensus estimates of 300.3 million. The company also reported weaker-than-expected advertising revenue, sending its stock down $61.62, or 12.43 percent, to close at $434.20 that day.
The legal scrutiny creates a new headwind for Spotify as it seeks to boost investor confidence with new revenue streams, such as the AI music generation tool announced with Universal Music Group on May 21. The investigations could lead to a class-action lawsuit, potentially resulting in financial penalties.
The investigations target whether Spotify and its officers failed to disclose pertinent information to investors leading up to the April 28 earnings report. For shareholders who suffered a loss, the probes offer a potential avenue for recovery, though the outcome is uncertain.
The immediate focus for investors will be on any formal lawsuit filings that may emerge from these investigations. Spotify's management has not yet publicly responded to the allegations, and their next quarterly earnings call will be a key event for addressing growth concerns.
This article is for informational purposes only and does not constitute investment advice.
