Spotify (SPOT) Reports Q2 Loss of EUR1.91 on Revenues of EUR1.89B; Provides 3Q & 4Q Revenue Outlook

Spotify (NYSE: SPOT) reported Q2 EPS of (EUR1.91), versus (EUR0.42) reported last year. Revenue for the quarter came in at EUR1.89 billion versus the consensus estimate of EUR1.67 billion.

Our business performed well in Q2 and continues to operate at a high level despite the continuing uncertainty surrounding the COVID-19 pandemic. Excluding the impact of social charges related to the increase in our share price during Q2, all of our key metrics would have finished at or ahead of our expectations. Our liquidity position and Free Cash Flow remain strong, and we are encouraged with the underlying trends of the business.

MONTHLY ACTIVE USERS (“MAUs”)

Total MAUs grew 29% Y/Y to 299 million, which is at the top of our guidance range.

Growth in North America exceeded our expectations, accelerating more than 200 bps this quarter relative to growth in Q2 last year. We saw retention continue to improve in Q2. This is on top of the gains we saw in North America throughout 2019. India also outperformed our forecast this quarter thanks to strong performance from marketing campaigns in the region. Latin America and Rest of World continue to see the fastest growth, with those regions growing 33% and 58% Y/Y, respectively.

Early in the quarter, we observed some COVID related softness in several countries across our emerging regions. Parts of Latin America and Rest of World saw slower than expected growth in April and May as we saw lower intake, an increase in churn, and increases in payment failures from our Premium users. Encouragingly, things rebounded significantly in June as we saw increased reactivations and a step down in churn. While we finished below forecast in aggregate across these regions, our strength in North America and other areas more than offset the slow start to the quarter. Additionally, we believe the improved momentum we saw in the back half of the quarter has continued into Q3 and we expect to hit our full year targets.

We noted last quarter that we began to see a modest impact on consumption hour trends driven by COVID. As of June 30, global consumption hours have recovered to pre-COVID levels. All regions have fully recovered with the exception of Latin America which is approximately 6% below peak levels prior to the global health crisis. Regions where the spread of COVID-19 appears to be slowing, including APAC and EU, have led the recovery in consumption. Consumption trends by platform are beginning to normalize as well; in-car listening at the end of the quarter was less than 10% below pre-COVID levels having recovered from a 50% decline at the trough in April.

GUIDANCE:

Spotify sees Q3 2020 revenue of EUR1.85-2.05 billion, versus the consensus of EUR2.37 billion.

Spotify sees Q4 2020 revenue of EUR2.05-2.25 billion.

These forward-looking statements reflect Spotify’s expectations as of July 29, 2020 and are subject to substantial uncertainty. The estimates below utilize the same methodology we’ve used in prior quarters with respect to our guidance and the potential range of outcomes. Given the extraordinary operating circumstances we currently face with respect to the impact of COVID-19 there is a greater likelihood of variances within those ranges than typical quarters.

Q3 2020 Guidance:

• Total MAUs: 312-317 million
• Total Premium Subscribers: 140-144 million
• Total Revenue: €1.85-€2.05 billion
  • Assumes approximately 260 bps headwind to growth Y/Y due to movements in foreign exchange rates
• Gross Margin: 23.1-25.1%
• Operating Profit/Loss: €(70)-€(150) million

Q4 2020 Guidance:

• Total MAUs: 328-348 million
• Total Premium Subscribers: 146-153 million
• Total Revenue: €2.05-€2.25 billion
  • Assumes approximately 360 bps headwind to growth Y/Y due to movements in foreign exchange rates
• Gross Margin: 23.7-25.7%
• Operating Profit/Loss: €(45)-€(145) million

For earnings history and earnings-related data on Spotify (SPOT) click here.

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