Spotify:Quarterly Results/2022 Q4

Results[edit | edit source]

Spotify library: 100 million tracks, more than 5 million podcasts and more than 300,000 audio books

Shifting focus on tightening spend and becoming more efficient. Gross margin and operating expenses are expected to improve throughout 2023, and free cash flow is expected to be in line with historic averages.

Q1 will be the low point in terms of gross margin for the year, with gross margin improving throughout 2023. No timeline for when break even will be reach.

The primary reason for changes in management was to drive speed and drive more efficiency.

No price increases are planned for now. Revenue growth strategy will depend on the country, and how mature the market is there.

Indicator	Guidance	Comments
Total MAUs	479 million (5% Q/Q)	Implies the addition of approximately 23 million net new MAUs in the quarter
Total Premium Subscribers	202 million (3.60% Q/Q)	Implies the addition of approximately 7 million net new subscribers in the quarter
Total Revenue	3.2 billion (18.96% Y/Y)	Assumes approximately 800 bps tailwind to growth Y/Y due to favorability in foreign exchange rates
Gross Margin	24.50%	Reflects the continuing benefit from Marketplace and favorable revenue mix shift to podcasts, offset by investments in non-music content and product enhancement initiatives
Operating (Loss)/Income	-300 million (-31.58% Q/Q)	Inclusive of the Operating Loss is approximately a 95 million impact to Operating Expenses due to Y/Y unfavorability in foreign exchange rates

Spotify announced on that it was reducing roughly 6% of its workforce. The layoffs will eliminate nearly 600 jobs; Spotify most recently reported having 9,800 full-time employees worldwide as of Sept 30. it would incur between 35M and 45M in severance-related charges.^[6]
Dawn Ostroff, chief content and advertising business officer, is departing Spotify. No reasons given. ^[6]
Spotify is centralizing most engineering and product work under chief product officer Gustav Söderström and the business areas under chief freemium business officer Alex Norström, each of whom have been named co-presidents. Norström will also assume oversight of Spotify’s content, advertising and licensing operations.^[6]
Spotify is pulling back from live audio production, canceling a number of shows including those under contract for more.^[7]

Earnings deterioration is expected to continue in this quarter, but revenue and MAUS expected to show decent growth. This discrepancy could be due to the significant investments Spotify has been doing to gain market share. However this should be monitored closely, as these investments and their results could become difficult to manage in an uncertain macroeconomic environment, and revenue growth expectations though still high, are trending lower. ^[8]
Change in management could mean the company could start being less dependent in the CEO, and improve its efficiency.
USD has become considerably weaker since October, this could create a tailwind for Q4 costs as most costs occur in dollar. ^[9]
We can expect earnings to come close to expectations. The analysts already revisioned the earnings down significantly since September^[10], and macro and company developments dont point to major surprises. Always important to consider that there could be hidden factors that could change this assessment.