Spotify earnings miss – 20180502

Timeline

• 20280430 – Bought into position at 162 –
  • 65 shares
  • 20180430
• 20180501 – Doubled down at 164 –
  • 400 shares
  • 20180501
• 20180502 – tripled down at 168
  • 200 shares
• 20180502 – after hours
  • shares drop to USD156 from USD170
  • miss target revenue by USD0.2billion
  • total loss in market cap – USD3billion
  • percentage loss of market cap % – 10%

lessons learned

• Beware of greed – Trading with the expectation of good news upon good news is asking for trouble
  • Don’t make bets on the unknowns
  • Don’t chase after momentum
• stick to strategy of loss aversion and reversion to mean
  • market over reacts with missed earnings
  • trade on the position after
    • company missed earnings
    • company’s revenue and earnings grew substantially YoY
  • Don’t double down on a bad decision
    • only double down if the fundamentals are strong and Wall street temporarily miss priced

Moving forward

• To study crowd behavior of the following earnings missing episodes
  • Positive examples – fundamentals were strong
    • Spotify – 20180502
    • Netflix – 20171017
  • Negative examples – fundamentals were weak
    • Snap – 20180501