LONDON/BENGALURU (Reuters) - Spotify Technology SA missed the beat on Wednesday. The streaming music leader fell short of investor hopes that it could turn free music listeners into paying subscribers at a faster clip, and its shares dropped as much as 9 percent.

FILE PHOTO: A trader is reflected in a computer screen displaying the Spotify brand before the company begins selling as a direct listing on the floor of the New York Stock Exchange in New York, U.S., April 3, 2018. REUTERS/Lucas Jackson/File Photo

Shares had run up 3 percent in regular trading ahead of its first report as a public company, and analysts said expectations may have become overblown. They voiced concerns that discounts were eating into the company’s average revenue per user. First-quarter revenue also fell shy of analysts’ average forecasts.

The Swedish company, which began trading in an unorthodox direct listing on the New York Stock Exchange in April, reported steady growth by most financial measures but failed to deliver the commanding performance that could justify the bullish stock recommendations published in the days ahead of the results.

Spotify said paid subscriptions for the second quarter would range between 79 million and 83 million, which at the midpoint was below Wall Street’s consensus forecast of 81.79 million, according to Thomson Reuters I/B/E/S.

Morningstar analyst Ali Mogharabi said Spotify appears to be discounting many full-price music subscriptions and extending the length of free-trial plans to convert free, advertising supported users into paying subscribers.

Average revenue per user in the first quarter fell to 4.72 euros, down from around 6.84 euros towards the end of 2015.

“It looks like there may be too many discounts and too high a percentage of premium subs may be in for the cheaper family and student plans,” Mogharabi said.

Shares of Spotify ran up 14 percent from their first day of trade a month ago, closing at $170 ahead of its first quarter financial report. Afterward, the stock was trading at $155.50, down 8.5 percent at 2245 GMT/6:45 p.m. ET on Wednesday.

Spotify reported first-quarter revenue of 1.139 billion euros ($1.36 billion), up 26 percent from a year earlier, or 37 percent excluding currency effects.

The revenue was broadly in line with the 1.10 billion euros to 1.15 billion euros the company had forecast but just short of the 1.143 billion euro consensus estimate among 13 analysts.

“Results and guidance are pretty much exactly in line with expectations, but the stock reaction clearly suggests investors were hoping for a little more,” Atlantic Equities analyst James Cordwell said.

One soft spot was slow growth in North America, Cordwell said, which despite Spotify’s global reach could be seen as a gauge for how well it is competing for subscriptions with Apple Inc and Amazon.com Inc.

Spotify, which launched its streaming music service a decade ago, has enjoyed a surge in subscriber growth only in recent years. Since launching in 2015, Apple Music has grown rapidly to 40 million paid users and 8 million trial users and is looking to overtake Spotify in the lucrative North American market.

Amazon Music, the No. 3 player in the global streaming music outside China, does not disclose exact figures but reported last week it had “tens of millions of paid customers” and that subscriptions grew more than 100 percent in the last six months.

The Swedish company said it expected revenue for the second quarter of between 1.1 billion and 1.3 billion euros, up 10 percent to 29 percent year on year, including foreign currency fluctuations. Excluding currency effects, Spotify expects revenue growth of 20 percent to 38 percent.

It projected gross margins of between 24 percent and 26 percent, roughly in line with the 24.9 percent margin it reported in first quarter.

MUSICAL REVIVAL

On Wednesday, Spotify kept its outlook for full year 2018 unchanged, with monthly active users rising to between 198 million and 208 million.

It posted a first-quarter operating loss of 41 million euros, a sharp improvement from a loss of 139 million euros a year ago.

Spotify said it had 170 million active monthly users at the end of March, up 30 percent from the year-ago quarter.

The rising popularity of Spotify’s subscription services have led stock market investors to once again prize the music industry after shunning it for more than a decade amid a wave of piracy by users and in the face of major technology shifts.

France’s Vivendi, the owner of Universal Music Group, the world’s biggest music label, said recently it is mulling a stock market listing of its wholly owned music unit.

Tencent Music Entertainment (TME), which attracts three-quarters of China’s booming music-streaming market, has been reported to be eyeing a listing in 2018. TME is controlled by internet giant Tencent and also holds a stake in Spotify.

Revenue from free, advertising-supported services which Spotify uses to woo new listeners to the service in order to eventually convert them to paying members, grew to 102 million euros in the first quarter, up 38 percent, year-over year. Advertising sales are a tenth of what it makes from subscribers.