Spotify Technologies’  (SPOT)  latest quarter could have ended on a high note, had it not been for those dissonant, distracting losses.

While the streaming leader’s premium subscribers rose 12% year-over-year to 276 million, surpassing the company’s own guidance, the company ran up a bill.

The company reported a €0.42 loss per share (versus €1.90 per share expected.) Worsening matters, it also missed on revenue, reporting €4.19 billion (versus €4.26 billion). The losses came from “higher personnel, marketing, and professional services costs” and “social charges.”

And then, as if a double-miss wasn’t bad enough, the company also issued weaker-than-expected guidance for the coming quarter.

Spotify stock fell 10.2% today, with the disappointing results risking an “undo” of one of Wall Street’s most recent memorable tech rallies. The company’s stock is up nearly 143% over the past five years. 

Spotify vs. the Music Industry

As the dominance of major record labels has waned in recent years, Spotify’s increased influence over the industry has emboldened its effort to extract more margin from its core business: music. 

It has done this by pushing for lower total content costs (TCC), the costs of acquiring recorded music for their catalog, in contract negotiations with rights holders. It has also responded to statutory hikes to other types of royalty rates — namely, publishing — by charging artists and rights holders for services that used to be free.

Discovery Mode, one of the densest of these features, charges artists a commission in exchange for placing their music on algorithmic playlists. Spotify takes this commission out of their royalty payment, thus reducing the pool on which other royalties are decided. 

And to some extent, this has worked out for Spotify. It goes as far as to single out the success of its marketplace programs in reports, among other factors like price hikes and subscriber additions.

Chasing Delusions of Grandeur

Spotify has proven that it knows how to dredge up revenue growth from premium customers, price increases, and regulatory arbitrage. However, the company continues to struggle along an axis of products, including its ad-supported tier and its expansion products, namely podcasting and audiobooks. 

There, Spotify has made innumerable commitments about its desire to move beyond the music industry, swearing by the higher margins that await; if only they could just diversify into another mission-critical business. This also makes for a convenient pitch, which investors have loved.

Only, none of it is particularly true. Ad-supported has remained relatively stagnant and unpredictable since the company’s IPO. It declined 1% year-over-year in the latest quarter and CEO Daniel Ek stresses that he’s “unhappy” with it.

But still, little has changed since the company went public. Sixty percent of Spotify’s monthly active users are ad-supported, but they represented just 10.7% of total revenue in the latest quarter. And when looking at margins, ad-supported only recently became profitable.

And expansion products like podcasting and audiobooks, which are folded into premium and ad-supported revenues, are arguably even more of a black box. We have limited insights about how they are utilized; only that they purport that customers are paying for these services.

Ultimately, these businesses might be viable, or even one day profitable. But on the time horizon that Spotify has been selling investors, it might be an increasingly hard sell.

If Spotify were to expand into a frontier business — such as ticketing, as it has previously hinted it would entertain — it could perhaps convince investors that the future is bright enough for more all-time highs. Until then, it might be a hard sell. 

Spotify is now 18% off its all-time highs, set earlier this month.