After a rough 2022 for investors, music streaming service Spotify (SPOT) posted mixed first-quarter earnings before the market on Tuesday.
Profits dropped as the business doubled heavily on expensive audio content, so it cut expenses by laying off workers and discontinuing programmes like Spotify Live.
Together, such initiatives and the highest quarterly increase in monthly active users in its history resulted to improved profit margins. However, quarterly revenue was negatively impacted by a decline in its advertising business and additional constraints connected to foreign exchange.
Spotify shares, which fell as much as 5% after the results were announced, recovered to rise by more than 6% in pre-market trade.
The company’s free cash flow for the quarter was 57 million euros, which is a favourable number for investors after it was -73 million euros in the previous quarter and -22 million euros year-over-year.
While 2022 will be a “peak investment year,” particularly for the podcasting division of Spotify, CFO Paul Vogel has stated that the company would begin working to increase its gross margin and operational income in 2023.
The Obamas, Prince Harry, and Kim Kardashian are just some of the A-listers who have signed on with Spotify’s podcast initiative, which has so far cost the company $1 billion. In 2019, the firm spent $230 million to purchase the Gimlet Podcast Network and Studio. Then, in 2020, Spotify will reportedly pay another $200 million for The Ringer to make Joe Rogan an exclusive on the service.
While competitors like Apple Music (AAPL) and YouTube Premium (GOOGL) have recently increased their prices, the business has not yet announced any plans to do so for its premium membership plan in the United States, at least not in the earnings announcement. While Ek has stated that the firm would take “a balanced portfolio approach” to pricing, experts anticipate that the streamer will announce price increases in the coming months in order to meet the profitability drive.
Stock in Spotify, which dropped by more than two-thirds in value in 2022, is now up by more than 60% in 2019 and by approximately 20% from a year ago. The stock price is still nearly 50% behind its all-time high of $364.59, which was reached in February of 2021.Spotify’s statement last month that it had surpassed 500 million MAUs was met with applause on Wall Street, and that news likely contributed to the increase in total monthly active users.
In the third quarter, premium subscribers totaled 210 million, above projections of 207 million.
In the second quarter, the business forecasted that monthly active users would rise to 530 million, with premium customers rising to 217 million. It also forecasted revenue of €3.2 billion.
Although recent signals of margin expansion have helped bolster investor confidence, Spotify’s falling gross margins remain a focal point of investor attention.
The company’s first-quarter gross margin of 25.2% was higher than analysts’ forecasts of 24.9%. After laying off 6% of its personnel earlier this year, Spotify issued a warning that “severance-related charges” will have an effect on the company’s financials. Spotify projected a marginal increase in gross margins to 25.5% for Q2.
Gross margins are expected to be between 30% and 35% as the company intends to expand its podcasting and advertising operations. However, macroeconomic constraints have left the details of implementation unclear.
Using data gathered by Bloomberg, here is how Spotify’s first-quarter performance stacks up against analyst forecasts:
Revenue of 3.04 billion Euros, compared to forecasts of 3.09 billion
Share loss of 1.16 euros, vs an anticipated loss of 0.85 euros
There are 515 million MUAs each month, which is 5 million more than was predicted to be there.