- Following the cost reduction announcement, Spotify updated its operating income/ loss outlook to to a range of €(93)-€(108) million from €37 million given during Q3 2023 earnings as it expects to incurr about €130-145 million in severance and real estate imparement charges during the quarter.
- The company noted that majority of the charges will come in the first and second quarter of 2024.
I=3
Spotify cancels two acclaimed podcasts, the Heavyweight and Stolen as it withdraws from in-house productions.
I=10
-
Spotify CFO Paul Vogel to leave the company in March 2024.
-
Spotify begins search for new CFO.
-
As the company search for a new CFO, vice president of financial planning and analysis Ben Kung will take additional responsibilities to support the financial team.
“Spotify has embarked on an evolution over the last two years to bring our spending more in line with market expectations while also funding the significant growth opportunities we continue to identify. I’ve talked a lot with Paul about the need to balance these two objectives carefully. Over time, we’ve come to the conclusion that Spotify is entering a new phase and needs a CFO with a different mix of experiences," CEO Daniel EK said in a statement.
-
Paul Vogel joined Spotify in 2016 as head of investor relations, financial planning and analysis and treasury teams and was promoted to CFO position in 2020, replacing Barry McCarthy who resigned.
-
Prior to joining Spotify, he was managing director and head of the internet and media equity research team at Barclays.
-
He also worked at AllianceBernstein as portfolio manager and at morgan stanley as research analyst.
-
Vogel sold shares worth $9.3 million after the recent layoff.
-
Vogel joins Taj Alavi (head of marketing since 2021), Jenny Hermanson (managing director for the Nordic region since 2015) and Tom Connaughton (managing director for the UK and Ireland since 2018) who are leaving the comapany.
Assessment
Given that some other senior executives have left the company following the layoff, Vogel may have been fired or didn’t agree with the huge headcount reduction. I consider his departure as positive for the company given that costs ballooned during his tenure. Investors such as ValueAct, which managed more than $9 billion in assets in 2019 criticised Spotify’s operating expenses. However, such high-level departures tend to create instability to the company’s operations.
1 Like
I=4
-
Overweight, $186->$216: Barclays thinks cost cuts announced this week will likely make its margin expansion goals more credible though its operating leverage is “a bit unusual.”
-
Outperform, $185->$225: Baird thinks that the announcement of the search for a new CFO and headcount reduction points to its renewed committment to balance growth with profitability.
1 Like
I=4
- Neutral->Buy, $150->$300: Rosenblatt analyst thinks the recent layoff can be seen as both scary and promising.
- Scary in the sense that it could predict a surprising slowdown in revenue growth and promising in that it could lead to a margin explosion.
- The analysts chose to go with explosion.
1 Like
I=3
- Warner Bros said Spotify’s podcast platform, Megaphone, will start hosting and distributing its podcasts.
- The podcasts will also be monetized via Spotify Audience Network.
- Warner Bros said that in the last 12 months, Spotify Audience Network has seen growth of advertiser participation and opted-in publishers by over 45% and 70%, respectively.
I=3
Spotify says it will continue its services in Uruguay after the government clarified that rightholders will be responsible for the costs included in the new bill.
My personal assessment is that the stock market overreacted to the lay-off news.
According to our calculations annualized cost savings are in the vicinity of $300 Million which is less than 1% of Spotifys current $39 billion valuation.
Laying of 17% of people including some senior management members like the CFO is a risk to the organization and cannot be seen purely as positive, especially since there have been apparently
no stable successor plans.
A smaller organization means more cost effectiveness but also fewer resources and talent and might affect some of their investments/initiates.
While i have trust that Spotify will manage the situation well and there is upside if everything works fine, there are undoubtedly also some potential downsides and risks.
Therefore i am looking cautiously optimistic/neutral on the situation and am waiting for more incoming news and additional commentary directly from Daniel Ek (either during the next quarterly earnings call or an event).
2 Likes
I=4
-
According to Bloomberg, the EU regulators are in the process of concluding a decision that would ban Apple’s App Store rules intended to thwart the likes of Spotify.
“EU authorities are putting the finishing touches to a decision that would prohibit Apple’s practice of blocking music services from pushing their users away from App Store to alternative subscription options,” Bloomberg reported citing people familiar with the matter.
Apple Set to Be Hit by EU Antitrust Order in App Store Fight With Spotify - Bloomberg
-
Spotify heavily critized the App Store rules saying it would make its audiobooks business less profitable.
1 Like
I=4
- Spotify slams the French government for proposing to introduce a tax on streaming services, saying that it will be a blow to European firms given their strong presence in France.
- According to Antoine Monin, Director General of France, though Spotify can absorb the tax, it is “in a fragile financial balance.”
- The bill proposes to impose a 1.75% tax rate on music streaming companies like Spotify.
- France is currently ranked the sixt largest recorded music market in the world having generated a revenue of €920 million from recorded music in 2022.
1 Like
I=4
Hold->Buy, $170->$265: Pivotal Research believes that Spotify’s renewed focus on financial discipline will drive higher medium-to-long-term EBITDA and free cashflow and that it appears Spotify is able to hike prices without significant churn.
I=2
Daniel EK said in an interview that he’s probably not the most powerful person in Spotify.
“there is the Scandinavian leadership model, where you delegate decision-making. You allow your leaders to make [the decisions]. So, in many ways, I’m probably the least powerful person in Spotify and I probably make the least amount of decisions in Spotify," he said.
1 Like
I=5
-
Once again, Spotify slams Apple for introducing new policies that enable users to make purchases through links that bypasses Apple’s own App Store payment system (which it charges 30%).
-
Developers will pay a commission of 27% and a payment processing fee for such payments.
-
The new policies were introduced after the US Supreme Court declined an appeal launched by Apple and Epic Games following a long court battle that found Apple violated anti-competition law.
“Once again, Apple has demonstrated that they will stop at nothing to protect the profits they exact on the backs of developers and consumers under their app store monopoly,” Spotify said in a statement. However, the EU’s Digital Markets Act (DMA) will finally put an end to this false posturing, which is essentially a recreation of Apple’s fees. We strongly urge the European Commission to act swiftly and decisively to prevent Apple from implementing similar fees, which are prohibited under the DMA.”
I=8
-
Spotify says it will allow in-app purchases of subscriptions and audiobooks in Iphones in the European Union.
-
The company credited the changes to the Digital Markets Act (DMA) which will take effect in March 7 and which rquires the likes of Apple to allow app developers to bill customers and distribute apps outside the App Store.
“The DMA means that we’ll finally be able to share details about deals, promotions, and better-value payment options in the EU. And an easier experience for you means good things for artists, authors, and creators looking to build their audiences of listeners, concert-goers, and audiobook-loving fans. What’s more? All of this can now come without the burden of a mandatory ~30% tax imposed by Apple, which is prohibited under the DMA,” Spotify said in a statement.
2 Likes
I=7
- Apple revamps its app store to allow users in the EU to download software from outside the App Store, use alternative payment systems and choose a new default browser as a way of addressing the requirements of the DMA Act.
- The company also lowered its App Store Commission fee from 30% to 17% for digital goods and servIces and to 10% after the first year for most developers.
- However, Apple is introducing two new fees: a 3% payment processing fee for apps purchased through its in-app purchase system and a €0.50 fee per app installed via third-party marketplaces as long as the software was installed more than 1 million times in a 12-month period.
- Apple said more than 99% of developers in the EU will see their payment decrease or stay the same while less than 1% will pay the app install fee.
Assessment and additional information
The new terms imply that Spotify can direct its users to its third-party app store; hence avoiding the new Apple app store commission of 17% or 10%. However, it would still be required to pay the app installation fee of €0.50 for apps with more than 1 million downloads in a year, which could amount to a lot. Epic Games CEO Tim Sweeney has criticised the new changes saying the new business terms amount to “junk fees”. I expect Spotify to do the same.
Apple says the changes meet the requirements of the DMA Act. This may not be true given that there is no clause in the Act that stipulates it can introduce a fee for sideloading. However, Apple can use a clause that says the company can introduce measures to ensure security of its app store to defend the new business terms.
Margrethe Vestager, the EU’s antitrust chief, said they will examine if Apple is attempting to follow the new rules or go around them.
“That’s what will be our test of it,” she said during a briefing with journalists. “Is this a way to circumvent the intention of the legislation?”
2 Likes
I=8
-
Spotify says the Apple changes go against the DMA Act.
“Under the false pretense of compliance and concessions, they put forward a new plan that is a complete and total farce. Essentially, the old tax was rendered unacceptable under the DMA, so they created a new one masquerading as compliance with the law,” It said in a statement.
-
The company added that the changes will not work out for them.
“Under the new terms, if we stay in the App Store and want to offer our own in-app payment, we will pay a 17% commission and a 0.50 cent Euro Core Technology Fee per install and year. This equates for us to being the same or worse as under the old rules. And if we managed to remove our app from the App Store and only existed in the Alternative App Store, that would still not work. With our EU Apple install base in the 100 million user range, this new tax on downloads and updates could skyrocket our customer acquisition costs, potentially increasing them tenfold. This, as we have to pay on every install or update to our free or paid app, even for those who no longer use the service.”
-
It pointed out that their recently announced plans for EU users is now less clear.
1 Like
I=4
-
There are signs that Spotify’s addition of audiobooks to its streaming service is aiding the consumption of audiobooks.
-
Excluding Spotify, the U.S. audiobooks market grew by 14% y/y in Q4 2023, that’s according to Bookstat which tracks daily sales of audiobooks.
-
Including Spotify, the audiobooks market grew 28% y/y.
“It suggests that they grew the market rather than cannibalizing existing Audible and Apple customers,” said Paul Abbassi, the founder of Bookstat.
1 Like
I=5
-
Neutral->Buy, $170->$274: Analyst Batya Levi of UBS sees Spotify’s margin improving.
“We think efficiency initiatives remain the focus and have increased conviction on sustainable margin expansion and stronger bottom line trends in the coming years,” analyst Batya Levi wrote in a note. “This, coupled with solid sub/MAU growth, a steady cadence of price increases and advertising growth, should lead to an improved EBITDA trajectory (UBSe ~30% higher than the Street in '24-27E).”
-
Levi expects Spotify podcasts to breakeven in the first half of 2024, pushing ad-supported segment margin to 12% from 3% last year.
-
He forecasts its gross margin to reach 27.1% in 2024 and around 90 basis points increase each year from 2025 to 2027.
-
He expects latest layoff to reduce operating expenses by around €340M.
https://seekingalpha.com/news/4059968-spotify-ticks-up-as-ubs-upgrades-sees-margins-rising
1 Like
I=8, SI=+2.5%
-
Spotify reaches a new multiyear partnership deal with Joe Rogan Experience.
"There’s so much more ahead, including that the show will soon be available on additional platforms. JRE remains podcasting’s king, consistently ranking as the most-listened-to podcast globally and our users have ranked the show as Spotify’s Wrapped top podcast each year since 2020, " Spotify said in a statement [1].
-
The Wall Street Journal estimates the multiyear deal to be worth $250 million and will have a minimum guarantee and a revenue sharing agreement based on ad sales.
-
Additionally, the deal will allow Spotify to distribute the JRE ads in other podcast platforms such as YouTube.
-
The journal says Spotify had paid Joe Rogan more than $100 million to make the show exclusive to Spotify and the estimated payout (tied to audience target) at the end of its term this year will be around $180-$200 million [2].
2 Likes