From Tinuiti: Audio ad spend is projected to grow 50% by 2026 with podcast advertising accounting for nearly â…“ of all digital audio ad spend. It is estimated that podcast advertising alone will surpass 4 billion dollars in 2024.
I have reviewed some of the opinions for Spotify, and they don’t offer many more additional insights than what we already know.
I think among them Spotify’s disadvantaged financial position among competitors is the concern that is most brought up and relevant. Below is some of the concern/risks I saw mentioned.
Concerns for Spotify:
- Spotify faces intense competition from giants like Apple, Amazon, and Google. These behemoths possess vast resources that Spotify is unlikely to ever match. To win in the streaming competition they can easily start price wars to bite up the bigger part of the pie at Spotify’s expense. Spotify is stuck in a cycle of needing to spend money to see growth, while for its competition is not a big concern.
- Operating expenses materially outpacing revenue. Operating expenses now make up ~31% of revenues compared to ~25% in 2016. Expenses are not expected to slow down significantly going forward, even with recent layoffs.
- Free cash flows have not increased, even though revenue has done so.
- Significantly higher multiples of Spotify that the sector median level.
- The music industry has been disrupted several times due to new tech. Therefore, there is a probability that audio streaming’s life cycle can also be short.
- A slowdown in ads business can discourage the creators, who live on ads revenue sharing from Spotify, to continue producing new content on the platform.
Yeah, those risks are pretty well known. I personally think none of it is a problem and it’s a good strategy of Spotify to reinvest increased revenue at the current stage as the industry is still very young and developing and it is therefore important to grab market share.
A smaller player like Spotify has more limited resources but also a greater focus on music as their survival depends on it, while it is just one of many areas for the behemoths, which means fewer of the most talented people at the competition are working on it.
Our signals going into Spotifis earnings are orange at best, given that we still lack any proprietary data points that could give us an advantage over the broader market.
Analyst moods are positive and expectations are high, which increases the risk of a missed expectations.
I suspect market participants will be especially interested in more insights about Spotify’s pricing strategy, its new premium music offering, and progress on the new App Layout.
-
Monthly active subscribers(MAUs) was 551 million, above management guidance of 530 million and analyst’s estimate of 526.8 million.
-
Spotify registered premium subscribers of 220 million, slightly above management guidance of 217 million and analyst’s forecast of 216.6 million.
-
Revenue was €3.18 billion(+11% y/y), in-line with management guidance and slightly below estimate of €3.21 billion.
-
Earnings per share of -1.55 euros versus -0.66 euros expected.
-
Gross margin came in 24.1% versus management guidance of 25.5%.
-
Operating loss was -€247 million, above management guidance of -€129 million due to €135 million net charges. But adjusted operating loss was -€112 million, in-line with management guidance.
-
Ad-supported revenue grew 12% Y/Y(or 15% Y/Y constant currency).
-
Spotify is guiding for MAUs of 572 million in Q3, above consensus estimate of 548 million.
-
It’s also guiding for gross margin of 26% in Q3, boosted by year-over-year improvement in podcasting and other costs of revenue.
-
Spotify said the announced price increases are expected to have minimal impact on Q3 revenue, which they are guiding to come in at 3.3 billion euros, below analyst’s estimate of 3.40 billion euros.
-
Spotify expects premium subscribers to be 224 million in Q3, in-line with analyst’s estimate of 222.4 million.
Spotify:Quarterly Results/2023 Q2 - InvestmentWiki
Spotify Q2 subscribers surge as earnings, profitability plunge amid higher costs
Spotify's user growth beats expectations
Numbers look very good at first glance.
Large beat on MAUs at 551M, 21M above guidance.
Beat on premium numbers as well at 220M, 3M above guidance.
Q3 2023 Outlook a bit weak esp. for 224M premium subs. This might be due to the latest price increase.
I wonder why the stock is down so much. It could be due to the fact that they don’t expect a positive effect from pricing changes in Q3 2023. This is expected though. As they give customers some time to adjust.
Other reasons could be relatively weak advertising data(but this is likely temporary) or a relatively low subscriber growth number for Q3 which does not seem worrying imo given the price increases.
Lastly, it could simply be an overall mood to take profits on those Q2 2023 earnings or even a “sell the news events” in which investors take profits on positive news - hence the stock will be down.
Most new MAUs came from Rest of the World.
IMO the miss on margins, low free cash flows, and weak guidance is the reason for the market reaction. The results don’t look that strong from that point of view. The rallies these companies had I think put the bar too high, and the market will not accept other than stellar results.
The Spotify conference call confirmed our expectations
- Subscriber growth guidance is conservative due to uncertainties of price increase effects.
- Increased revenue will only show up in Q4 as the price increase comes into effect at the end of Q3.
Personally, I think, that there has been no warranted reason for yesterday’s sell-off.
Margins have been lower due to restructuring costs, which is temporary but should improve after the price increase gets into effect
What I fear way more is competition esp. from Youtube Music Spotify Competition - #7 by moritz
Here is a Mindmap with all insights from yesterdays conference call.