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Spotify Technology (SPOT) reported fiscal second-quarter earnings that beat expectations, with revenue coming in line with estimates. The company posted an adjusted profit, reflecting its recent "efficiency" strategy, although monthly active user metrics were lower than anticipated.
In June, Spotify announced price hikes for its premium US subscription plans, effective this month, following similar increases last summer. The company has implemented multiple rounds of layoffs and initiatives to boost top-line growth and improve margins, including a music-only streaming tier, an audiobooks-only plan, and a higher-priced audio bundle.
Key financial highlights include:
Operating Income: €266 million ($289 million), compared with a loss of €247 million in the prior-year period, surpassing company guidance of €250 million.
Net Income: €274 million ($298 million), with earnings of €1.33 per share, ahead of analyst expectations of €1.04 per share and a year-earlier loss of €302 million or €1.55 per share.
Revenue: €3.81 billion ($4.14 billion), a 20% increase from the second quarter of 2023, meeting expectations.
Gross Margins: 29.2%, exceeding company guidance of 28.1%. Expected to rise to 30.2% in Q3, driven by year-over-year improvements in music and podcasting.
Total Monthly Active Users (MAUs): 626 million, below company estimates of 631 million but a 14% year-over-year improvement.
Expected to reach 639 million in Q3.
Premium Subscribers: 246 million, slightly above company expectations of 245 million and a 12% year-over-year jump. Expected to increase to 251 million in Q3.
Free Cash Flow: €490 million, significantly up from €9 million in the prior year.
Average Revenue Per User (ARPU) for Premium Subscriptions: Increased 8% year-over-year to €4.62 (10% year-over-year excluding foreign exchange headwinds).
Spotify's strategic investments and adjustments include:
Spending $1 billion on the podcast market over the past four years, which initially impacted gross margins and profitability.
A shift to focus on distribution rather than exclusivity in its podcast strategy.
Changes to its royalty structure and offering free audiobooks to paying subscribers.
New deals with popular podcasters like Joe Rogan and Alexandra Cooper of "Call Her Daddy."
Spotify’s stock has surged as a result of these changes, gaining more than 50% since the start of the year and about 70% on a yearly basis. The positive stock reaction was fueled by the company's strong Q3 operating income guidance and better-than-expected gross margins.
Stock Performance:
At close: $295.45 (+0.36, +0.12%)
Pre-market: $335.25 (+39.80, +13.47%)
Future Expectations:
Q3 Operating Income: Expected to be €405 million ($440 million), well above Wall Street consensus of €298.1 million.
Revenue: Expected to hit €4 billion in Q3, compared to €3.4 billion in the year-ago period.
Long-term gross margin target: Between 30% and 35%, amid plans to scale its podcasting and ads business.
Spotify’s efficiency measures and strategic shifts have positioned it for improved profitability and sustained growth, leading to a robust positive response from investors.
Spotify Technology (SPOT) reported fiscal second-quarter earnings that beat expectations, with revenue coming in line with estimates. The company posted an adjusted profit, reflecting its recent "efficiency" strategy, although monthly active user metrics were lower than anticipated.
In June, Spotify announced price hikes for its premium US subscription plans, effective this month, following similar increases last summer. The company has implemented multiple rounds of layoffs and initiatives to boost top-line growth and improve margins, including a music-only streaming tier, an audiobooks-only plan, and a higher-priced audio bundle.
Key financial highlights include:
Operating Income: €266 million ($289 million), compared with a loss of €247 million in the prior-year period, surpassing company guidance of €250 million.
Net Income: €274 million ($298 million), with earnings of €1.33 per share, ahead of analyst expectations of €1.04 per share and a year-earlier loss of €302 million or €1.55 per share.
Revenue: €3.81 billion ($4.14 billion), a 20% increase from the second quarter of 2023, meeting expectations.
Gross Margins: 29.2%, exceeding company guidance of 28.1%. Expected to rise to 30.2% in Q3, driven by year-over-year improvements in music and podcasting.
Total Monthly Active Users (MAUs): 626 million, below company estimates of 631 million but a 14% year-over-year improvement.
Expected to reach 639 million in Q3.
Premium Subscribers: 246 million, slightly above company expectations of 245 million and a 12% year-over-year jump. Expected to increase to 251 million in Q3.
Free Cash Flow: €490 million, significantly up from €9 million in the prior year.
Average Revenue Per User (ARPU) for Premium Subscriptions: Increased 8% year-over-year to €4.62 (10% year-over-year excluding foreign exchange headwinds).
Spotify's strategic investments and adjustments include:
Spending $1 billion on the podcast market over the past four years, which initially impacted gross margins and profitability.
A shift to focus on distribution rather than exclusivity in its podcast strategy.
Changes to its royalty structure and offering free audiobooks to paying subscribers.
New deals with popular podcasters like Joe Rogan and Alexandra Cooper of "Call Her Daddy."
Spotify’s stock has surged as a result of these changes, gaining more than 50% since the start of the year and about 70% on a yearly basis. The positive stock reaction was fueled by the company's strong Q3 operating income guidance and better-than-expected gross margins.
Stock Performance:
At close: $295.45 (+0.36, +0.12%)
Pre-market: $335.25 (+39.80, +13.47%)
Future Expectations:
Q3 Operating Income: Expected to be €405 million ($440 million), well above Wall Street consensus of €298.1 million.
Revenue: Expected to hit €4 billion in Q3, compared to €3.4 billion in the year-ago period.
Long-term gross margin target: Between 30% and 35%, amid plans to scale its podcasting and ads business.
Spotify’s efficiency measures and strategic shifts have positioned it for improved profitability and sustained growth, leading to a robust positive response from investors.