Though by no means terrible, Spotify's (SPOT) - Get Report first post-IPO earnings report has left those hoping that the pre-IPO guidance the online music leader issued was conservative feeling a little disappointed.

The report also brought a pair of pre-IPO concerns back into the spotlight: That revenue growth will continue trailing subscriber growth, and that Spotify's business model makes substantial margin improvement very difficult.

On Wednesday afternoon, Spotify reported first-quarter revenue €1.14 billion (up 26% annually, equal to $1.37 billion) and EPS of negative €1.01 (negative $1.21). Revenue slightly missed a €1.16 billion consensus. EPS was well below a negative €0.32 consensus due to accounting costs related to Spotify's debt, but the company's operating loss of €41 million was better than a €66 million consensus.

The company also reported it ended Q1 with 75 million paid subscribers -- up 6% sequentially and 45% annually, within a prior guidance range of 73 million to 76 million and roughly in-line with analyst estimates. Monthly active users (MAUs) for Spotify's ad-supported service, which just got a revamp, rose 9% sequentially and 21% annually to 99 million.

Apparently weighing on shares, which fell 5.7% on Thursday: Spotify is guiding for second-quarter revenue of €1.1 billion to €1.3 billion, below a pre-earnings consensus of €1.31 billion. Subscriber guidance of 79 million to 83 million (up 34% to 41% annually) for Q2 is in-line with an 82 million consensus, albeit slightly below at the midpoint.

Also: Spotify is reiterating the full-year guidance it provided on March 26. Among other things, this includes a forecast for 2018 revenue of €4.9 billion to €5.3 billion ($5.9 billion to $6.4 billion), and for the company to end the year with 92 million to 96 million subs (up 30% to 36%). It also includes operating loss guidance of €230 million to €330 million -- a low expected gross margin of 23% to 25% (largely due to Spotify's licensing deals with big music labels) will weigh, as will heavy ongoing R&D and marketing spend.

Image placeholder title

The reiteration seems to be disappointing Wall Street a little. Going into earnings, consensus estimates were for revenue of €5.3 billion and 95.5 million subs, and some of those who had bid shares to a $34 billion valuation may have been expecting stronger full-year numbers still.

As Spotify is eager to note, currency swings are weighing on the company's euro-based revenue figures. Q2 revenue guidance implies only 10% to 29% euro-based growth, but 20% to 38% constant currency (CC) growth. Full-year revenue guidance implies 20% to 30% euro-based growth and 26% to 37% constant currency growth. However, Spotify's prior guidance already accounted for currency swings, and the same appears to hold for most analyst estimates.

Moreover, even on a constant-currency basis, Spotify's guidance implies revenue growth will remain markedly below subscriber growth. The midpoints of the company's Q2 guidance ranges imply 37.5% subscriber growth and 29% CC-based revenue growth. This follows a Q1 in which subs rose 45% and revenue rose 37% in CC.

It's hardly a secret that Spotify's average revenue per paid sub (ARPU) has been under pressure: It was down 13% annually in Q4 to €5.24 ($6.28), with Spotify blaming a growing mix of subs signed up for Family or Student plans. But the magnitude of the continued ARPU declines might not be sitting well: ARPU fell 10% sequentially and 14% annually in Q1 to €4.72. And though seasonal trends should provide a boost to ARPU in Q2, Spotify's guidance suggests the annual decline could be even larger this quarter.

In its Q1 report, Spotify blames not only Family/Student plan adoption for its ARPU pressures, but also currency swings and subscription growth in "relatively lower ARPU geographies" such as Latin America. Going forward, a recently-announced deal with Hulu through which U.S. consumers can get a Spotify's individual plan (normally $10 per month) and Hulu's Limited Commercials plan (normally $8 per month) for $13 per month could also weigh, assuming both Spotify and Hulu are both footing part of the bill for the discount.

Aside from their potential impact on margins -- Spotify's music label deals generally require it to pay the higher of a percentage of revenue or a fixed per-subscriber fee -- what makes such ARPU pressures particularly worrisome is that much of the debate about what Spotify is ultimately worth has revolved around its long-term pricing power.

Bulls have argued that like Netflix (NFLX) - Get Report , the immense popularity of Spotify's services -- popularity that has resulted in subs streaming over 80 minutes of content per day on average -- will allow it to eventually carry out price hikes that in turn will make the company highly profitable. Bears have argued that Spotify's pricing power is very limited, given that (unlike Netflix) most of its content is available via rival music services and some of those either undercut Spotify (think's (AMZN) - Get Report Music Unlimited) or bundle video services (think Alphabet's (GOOGL) - Get Report YouTube Red, and perhaps soon Apple's (AAPL) - Get Report Apple Music). And also because Spotify is competing head-on against tech giants that might not necessarily care a lot about turning a profit from their music services.

While this debate is hardly settled, for now Spotify's increasing reliance on subscription plans that provide the company with much less than $10 in monthly revenue per subscriber are giving bears a valuable talking point.

Jim Cramer and the AAP team hold positions in Amazon, Alphabet and Apple for their Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells AMZN, GOOGL or AAPL? Learn more now.