Spotify stock moves higher as total users, revenue beat earnings estimates
Spotify (SPOT) reported its fiscal second quarter results on Wednesday before the bell as the platform doubles down on podcasts amid an increasingly crowded music streaming landscape.
Here are Spotify's second quarter results compared to Wall Street's consensus estimates, as compiled by Bloomberg:
Revenue: $2.91 billion versus $2.85 billion expected
Adjusted loss per share: -$0.86 versus -$0.72 expected
Total monthly active users (MUAs): 433 million versus 428 million expected
Monthly active users grew 19% year-over-year to 433 million, 5 million above guidance. Net additions of 19 million represented the company's largest ever Q2 growth, with expectations set even higher than anticipated for Q3 at 450 million.
Premium subscribers grew 14% year-over-year to 188 million, 6 million above the first quarter's total and slightly above company guidance of 187 million.
Spotify stock rose nearly 10% in premarket following the results, but has climbed above 13% in early morning trading.
"While we continue to monitor the uncertain macro environment, we are very pleased with the resilience of the business, particularly our strength in MAUs and Subscribers," executives said in the earnings release, although they did note an "intention to reduce hiring growth for the back half of 2022 by 25%" while monitoring macroeconomic conditions.
On the earnings call, CEO Daniel Ek said the company is "preparing as if things can get worse, but hard to be anything but optimistic" given the current data. Ek added that there has been "no material impact" on users amid the downturn and believes the company has long-term pricing power.
Reported gross margins disappointed at 24.6%, missing estimates of 25.2% as the streamer spends big on non-music content. Gross margins were also negatively impacted by its decision to stop manufacturing Car Thing, a smart player accessory designed for automotive dashboards.
The company anticipates gross margins to climb higher in the third quarter, with guidance set at 25.2%.
As of the end of Q2, Spotify had 4.4 million podcasts on the platform, up from 4 million in the first quarter.
The number of MAUs that engaged with podcasts grew in the substantial double-digits year-over-year. Per user podcast consumption rates also continued to rise, with the company saying it plans to "accelerate expansion" into audiobooks.
Ek teased that listeners will begin to experience the "full extent" of its audiobooks and other formats in the first half of 2023.
Advertising revenue was another bright spot for the quarter — jumping 31% to $365 million, and "reaching an all-time high as a percent of total revenue at 13%."
However, analysts remain cautious as a possible recession could cause a pull-back. One executive told CNBC a 20% retreat is possible by year-end.
Spotify’s Chief Financial Officer Paul Vogel admitted that he has seen "some softening in [advertising] trends," but is optimistic overall when it comes to the third quarter.
Costs remain a concern as Spotify has "been a public company for a while, and they've really never been profitable," CFRA analyst John Freeman previously told Yahoo Finance.
He signaled that the platform's sky-high costs for its podcast deals (which included a reported $200 million multi-year licensing contract with Joe Rogan) can only go so far.
"The problem with paying Joe Rogan, or whoever, a lot of money is that you lose leverage on a certain percentage of your subscriber base and it then becomes the 'Joe Rogan show,'" the analyst explained.
He added, "I have no problem with them sacrificing growth — if they can show some profitability."
Investors seem to have similar concerns with shares tumbling by more than 50% so far in 2022 and by about 70% since reaching an all-time high in February 2021.
Spotify attempted to revive sentiment during its most recent investor day, revealing that it brought in roughly $215 million in podcast revenue last year.
CEO Daniel Ek underscored the potential of the platform's podcast unit, estimating that he expects it to generate margins between 40% to 50%.
Nevertheless, the company has experienced some setbacks related to its podcast endeavors.
The Obamas, who signed a three-year deal with Spotify in 2019, recently decided against renewing their contract, opting for rival Audible, instead.
Additionally, Alex Goldman and Emmanuel Dzotsi — hosts of the popular podcast "Reply All" — left the show "to explore opportunities" outside of production company Gimlet. The last episode aired June 23.
Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com
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