Spotify (SPOT) Stock Plunges 11% as Results Show Margins are Shrinking, Analyst Reaction Mixed

April 27, 2022 9:20 AM EDT
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Price: $252.73 -0.89%

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    Up: 11 | Down: 17 | New: 23
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Shares of Spotify (NYSE: SPOT) are down more than 8.5% in premarket trading Wednesday after the company’s monthly active users Q2 forecast met analyst expectations.

The audio and music streaming service provider reported Q1 revenue of €2.66 billion, up 24% YoY and slightly above the consensus estimates of €2.61 billion. Revenue from its premium service totaled €2.38 billion, up 23% YoY, beating the analyst estimates of €2.32 billion.

Spotify reported 422 million monthly active users in the first quarter, up 19% YoY and above the consensus projection of 417.1 million. The number of premium subscribers totaled 182 million in the period, up 15% YoY and in line with the estimated 182.7 million.

The average revenue per user (ARPU) stood at €4.38, above the expected €4.26. SPOT reported EPS of €0.21, compared to the loss per share of €0.25 in the same period last year. Operating loss stood at €6 million, compared to the profit of €14 million in the year-ago quarter and an estimated loss of €60.7 million.

The company reported a gross margin of 25.2%, compared to 25.5% in the same period last year and in line with the consensus estimates.

For Q2, Spotify expects €2.8 billion in revenue, also in line with analyst estimates of €2.82 billion. The company expects to report 428 million MAUs, matching the estimated 428.1 million. It expects a total of 187 million premium subscribers in Q2, below the consensus projection of 189.4 million.

The gross margin is expected to be 25.2%, compared to the analyst consensus of 27%.

Spotify said subscriber growth beat expectations when excluding the impact of its exit from Russia, while premium subscriber growth was driven by strong performance in Latin America and Europe.

The Stockholm-based company expects its user choice billing agreement with Google to launch later in 2022.

JPMorgan analysts saw results as solid with “most metrics above guidance ex-Russia impact and we are encouraged that Ad Revenue continues to grow 20%+ FXN, suggesting increased podcast ad traction.”

Wells Fargo Securities analysts are more bearish as they maintained an Underweight rating and a PT of $153.00 per share.

WF said that the best part of the report was average revenue per user growth, “while the most worrying item was the Q2 margin guide.” Analysts noted that a move lower in shares “only made sentiment more critical of the business model with the margin outlook being the fulcrum for the shares to rebound.”

By Senad Karaahmetovic

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