Spotify:Quarterly Results/2023 Q1

Return to: Spotify | Earnings Season:2023 Q1

See also: Spotify:Quarterly Results/2022 Q4

Results

Indicator	Guidance Q1 2023	Actual Results	Y/Y Change	Guidance Q2 2023
Total MAUs	500 million	515 million	22%	530 million
Total Premium Subscribers	207 million	210 million	15%	217 million
Total Revenue	3.1 billion	3.042 billion	14%	3.2 billion
Gross Margin	24.90%	25.2%		25.5%
Operating (Loss)/Income	-194 million	-156 million		-129 million

Earnings Calls Notes

User Growth

• Up 26 million quarter-over-quarter the largest Q1 net additions in history and the second largest all-time

• Growth was broad-based, with strength across all regions.
• Net additions across nearly all age demographics in both developed and developing regions.
• Positive trends in DAU to MAU ratio as well as in churn.
• Additional growth in family and duo plans as well as people coming on promotional had an impact on ARPU lower than expected
• Listening hours for MAU was really strong in the quarter, both across music and podcasting

Advertising

• Modest underperformance in advertising.
• First Q1 in Spotify's history that surpassed €300 million in ad revenue.
• Slightly behind on the ad side, about 15 -- about 20 million or so.
• Have had similar encouraging sort of trends heading into Q2.
• Data driven opportunity to measure and target ads better over time.
• Growing nicely and outperforming the market and peer group overall, but the macro has probably slowed down the results.
• Comps do get easier throughout the year, which will definitely benefit results

FX

• Forecasting a 300 basis point headwind to growth in Q2
• This will be led by the weakening U.S. dollar relative to the euro

AI

• AI empowers creators. There will be more music choices and potentially new music created by users who publish directly on Spotify.
• Constant discussion with our partners and creators and artists, want to strike a balance between allowing innovation and, of course, protecting artists.
• AI DJ, we've had nothing but positive reactions from across the industry.

Efficiency

• Focusing on speed of decision-making.
• Will still take some time before that then leads into actual products that then leads to actual business results.
• Gross margin side seeing sequential improvement throughout 2023, and will continue.
• In terms of workforce, nothing else at in terms of workforce reductions.

New Interface

• New home feed that we announced is still being rolled out.
• Have already made lots of iterations with the user feedback gotten.
• Will take multi quarters for us to roll out because it's not just a feature or something else. It's a whole new infrastructure behind it with a whole new instrumentation for our AI tools as well.

New Products

• Two out of three new verticals teased at investor day last year are advancing nicely.

Content

• Going to be very diligent in how to invest in future content deals
• They sophisticated tools for measuring impact on the platform, where they understand the relative impact on lifetime value in our subscribers. That help paying a fair price or understanding what a fair price would be.
• now the largest podcasting platform that means there is a great opportunity to amortize across a larger base.

Pricing

• Would like to raise prices this year. Ongoing negotiation with label partners how to structure it.
• Raised prices in 46 different occasions and markets last year, and even in those markets still outperforming.
• Feel really good about ability to raise prices over time, and have lots of data now that backs that up.
• Marginally helped by being a lower cost provider, but it isn't a primary part of the strategy

Expectations

Management GuidanceEUR

Indicator	Q4 2022 Results	Guidance Q1 2023	Comments
Total MAUs	489 million (20% Y/Y)	500 million	Implies the addition of approximately 11 million net new MAUs in the quarter
Total Premium Subscribers	205 million (14% Y/Y)	207 million	Implies the addition of approximately 2 million net new subscribers in the quarter
Total Revenue	3.166 billion (18% Y/Y)	3.1 billion	Assumes approximately 100 bps tailwind to growth Y/Y due to favorability in foreign exchange rates
Gross Margin	25.30%	24.90%	Reflects Y/Y improvement in music and podcasting offset by a modest drag in Other Cost of Revenue and severance-related charges
Operating (Loss)/Income	-231 million (-3,200% Y/Y)	-194 million	Inclusive of the Operating Loss is an approximate €19 million impact to Operating Expenses due to Y/Y unfavorability in foreign exchange rates and a €35-45 million impact to Operating Expenses due to severance-related charges

Analyst Expectations USD

	Low	Mid	High	Growth Q/Q	Growth Y/Y
Yahoo Revenue (USD B)	3.1	3.37	3.42	6.44%	26.64%
Yahoo EPS	-1.45	-0.93	-0.57	34.97%	-522.73%
Seeking Alpha Revenue (USD B)	3.36	3.39	3.44	7.08%	27.40%
Seeking EPS	-1.45	-0.94	-0.57	34.27%	-527.27%
Zacks Revenue ( USD B)	3.33	3.36	3.38	6.13%	26.27%
Zacks EPS	-1.44	-1.04	-0.77	27.27%	-559.09%

Share Count Q4-2022: 193.2 Million

Consensus EPS -0.94/share -> EUR 181 Million

Developments

See: Company News#Spotify

• Spotify Technology SA (SPOT.N) said it plans to cut 6% of its workforce and would take a related charge of up to nearly $50 million.
• Activist ValueAct takes stake in Spotify. Morfit didn’t elaborate on the size of the Spotify investment.
• Max Cutler, Spotify's head of audio talk shows and partnerships will leave the company on May 1.

Product Updates

• Spotify’s DJ feature will deliver a curated selection of music alongside AI-powered spoken commentary about the tracks and artists you like.
• Spotify is testing playlists that could be unlocked by NFT holders.
• Spotify combines the heart and the “Add to playlist” icons into a single plus button
• Spotify new design: In the updated Spotify mobile app, users and subscribers will gain access to a handful of new features, including the vertically scrolling “discovery” feeds, a new “Smart Shuffle” mode for playlist recommendations, a new podcast autoplay feature and more
• Spotify expands its audiobooks to Canada, making them available in both English and French.
• Spotify introduces a tool for turning radio broadcasts into podcasts.

Analyst Commentary

KeyBanc

• Spotify disclosed it surpassed ~500M monthly active users (MAUs) in early March, and our Audio Survey and 3P data points reinforce momentum. Coupled with an improving ad market and further cost cuts, we expect slight upside to KPIs on 1Q results and 2Q guidance, and operating loss improving faster than consensus contemplates throughout 2024E.

Guggenheim

• Analyst Michael Morris said that there is “an attractive revenue growth runway for the industry that will exceed current consensus estimates.

Redburn

• Upgrades Spotify to buy while noting that "it sees stronger margins as headwinds from investments decline, publishing royalty increases and foreign exchange wane.

Wells Fargo

• The company's operating expenditure is demonstrating leverage as income losses improve, and it should break-even in Q1 of 2024. Spotify is coming off margin probation and its price increase could boost its margins on music.

Jefferies

• Does not see the company's gross margins returning to 2021 levels until 2024 and above 30% well beyond that. Audio service convergence is happening at a much slower pace than expected.