Spotify:Quarterly Results/2023 Q2

Return to: Earnings Season:2023 Q2 | Spotify

See also: Spotify:Quarterly Results/2023 Q1 | Spotify:Quarterly Results

Things to be checked

• Number of subscribers.
• Revenue and EPS results.
• Revenue and EPS outlook.
• Pricing
• Comments on expected launch of its Supremium subscription.
• Comments on AI.
• Advertising revenue.
• Performance of podcasts and audiobooks.
• Retention metrics.
• Products launched during the quarter and their expected results.
• CEO/CFO comments.

Results

Indicator	Guidance Q2 2023	Q2 2023 Actual Results	Y/Y Change	Guidance Q3 2023
Total MAUs	530 million	551 M	27%	572 M
Total Premium Subscribers	217 million	220 M	17%	224 M
Total Revenue	3.2 billion	3,177 B	11%	€3.3 billion
Gross Margin	25.5%	24.1%		26.0%
Operating (Loss)/Income	-129 million	- 247 M		€-45 million

• 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.

Earnings Calls Notes

Visualization (Experimental)

User Growth

• highest MAU growth in Spotify's history
• Last couple of quarters underspend in marketing and still delivered exceptional user growth and subscriber growth.
• There's some conservatism baked in subcriber growth due to the price increases.
• Significantly outperform in Q2. So there's a question of how much, if any, was pull forward from Q3 into Q2, given it was strongest Q2 ever from a subscriber perspective.

Pricing

• Felt the timing was right for price increases because they have already expanded value to price significantly.
• Price increases won't impact revenue per user much up until the end of Q3, expect it to have a meaningful impact on Q4 and beyond. Most subscribers, they won't see a price increase until September.
• They feell like they are in a win-win situation with all of the rights partners after the recent price increases
• 50 price increases have been done so far, it has had very little impact on any future growth or anything in terms of churn or conversion rates.

Profitability

• Steps to shrink real estate footprint, rationalize certain areas ofpodcasting business and the exit of Soundtrap Marketplace business will have positive impact on the rate of profitability on a go-forward basis. However, they did result in roughly EUR135 million of net charges in the quarter
• Hurdle for any new investment is going to be significantly higher going forward.
• Expect our headcount year-over-year to actually be down in Q3.
• The biggest impact on ARPU 3% decline on the quarter was the product mix, lookink forward the price increase will moderately help in Q3 , to a FX neutral ARPU kind of flat to down 1% in Q3, then a positive trend after that.
• Despite the efficiencies done, they are at an all-time high on the number of experiments that are doing and improvements

AI

• Enormous benefits in core machine learning or AI improvements in discovery, in higher engagements and higher retention, which then lowers churn.
• AI developments can summarize what podcasts are about, and by doing so, it becoming a lot more easier to merchandise new podcast for consumers which drives in turn higher engagement and more growth for creators.
• Can also become a lot more efficient as a company by leveraging AI.

Advertising

• Some improvement throughout the quarter, the back half the quarter was better than the first half, although not that out of line with our expectations. Expect advertising to be even better in 3Q, which is baked into guidance.
• SPAN was a big driver of the outperformance, it helped podcast ad revenue
• ARPUs on the ad side are going to be much lower in the rest of the world than they are in the US, and growth is mostly coming from those regions.

Podcast

• After the initial investment, there is a now more data to doubling down and renewing the things that did work and stop doing the things that didn't work.
• Continue to see improvements in the margins. The rate of improvement on the on the gross margin is right on track to the expectations given on investor day
• Seeing podcasters now realizing that they have one video feed on Instagram and YouTube and all these other platforms and uploading more long-termcontent on Spotify at the same time with great success
• Going for more creators, which probably will lean to more younger consumers all around the world as well.

Expectations

Management Guidance EUR

Indicator	Q2 2022 Results	Q1 2023 Results	Guidance Q2 2023	Y/Y Change	Comments
Total MAUs	433	515 million	530 million	22.40%	Implies the addition of approximately 15 million net new MAUs in the quarter
Total Premium Subscribers	188	210 million	217 million	15.42%	Implies the addition of approximately 7 million net new subscribers in the quarter
Total Revenue	2.864 billion	3.042 billion	3.2 billion	11.73%	Assumes approximately 300 bps headwind to growth Y/Y due to foreign exchange rate movements
Gross Margin	24.6%	25.2%	25.5%	3.66%	Reflects Y/Y improvement in music and podcasting and the lapping of last year’s Car Thing charge and changes in prior period estimates for rightsholder liabilities
Operating (Loss)/Income	- €194 million	-156 million	-129 million	35.05%	Assumes approximately 200 bps benefit to Operating Expense growth Y/Y due to foreign exchange movements

Analyst Expectations

Exchange rate June 30: 0.92

Share count: 193.42M

	Low	Mid	High	Growth Q/Q	Growth Y/Y
Yahoo Revenue (USD B)	3.55	3.6	3.64
Yahoo Revenue EUR B		3.312		8.88%	15.64%
Yahoo EPS USD	-1.29	-0.73	-0.29
Yahoo EPS EUR	-1.15	-0.6716	-0.26	42.10%	20.99%
Yahoo Earnings EUR M		-129.90

Earnings Revisions

Revisions have been mostly negative, and they have not recovered recently despite the optimism in tech stocks.

https://seekingalpha.com/symbol/SPOT/earnings/revisions

Important Insigths

See: Company News#Spotify

• Spotify continues with its cost cutting measures: cut an additional 2% of employees in June, it has let high-profile podcast deals lapse, has done some internal reorganization, and is looking to sublease floors in its New York City office.
• The rumoured superpremium plan could have the potential to boost revenues, however there are not additional details about when it will be release and the price of this new plan. Spotify management has refuse to confirm the new development.
• Goldman Sachs decreased the 2023 streaming revenue growth, but this one is still expected to be over 11% (previous 13%).
• Goldman Sach has forcasted that streaming music sites will increase prices 3% per year for the next seven years, and that the new development of premium plan for super fans will boost monetazation too.

Web Traffic

Disclaimer: Web traffic data we dont know how accurate is it, or how indicative of results can be.

	TipRanks	SimilarWeb
Date	Visits (M)	Visits (M)
Jun-23	661.12	477.6
May-23	711.17	491.8
Apr-23	710.25	473.7
Mar-23	787.96
Feb-23	688.09
Jan-23	672.13
Dec-22	693
Nov-22	634.9
Oct-22	578.63
Sep-22	560.85
Aug-22	503.69
Jul-22	422.38
Jun-22	456.54
May-22	417.23
Apr-22	414.81

Analyst Commentary

Monness, Crespi, Hardt

Analyst Brian White of Monness, Crespi, Hardt expects Spotify to report 217M premium subscribers, up 16% and total monthly active users to grow by 23% to 532M in Q2 2023.

"Over the past couple of quarters, Spotify has meaningfully exceeded its MAU guidance," White wrote in an investor note. "Spotify has also delivered upside in Premium Subscribers, albeit to a lesser degree than MAU."

• He forecasts revenue to grow 12% year-over-year to €3.204B.
• White forecasts EPS to be €0.72 per share.
• He believes Spotify "is riding a favorable long-term trend" expanding its audio offerings, moving further into the ad market and improving its cost structure.
• He also said that Spotify has room to raise prices.

Wells Fargo

Wells Fargo raised Spotify price target from $180 to $250 and maintained overweight rating.

"MAU growth, market share, cost cuts and margin drivers are starting to fire on all cylinders. Our new $250 target is a 20% discount to NFLX on EV/GP, and we like the LT margin story," Wells Fargo analysts wrote.

Keybanc

-Keybanc analysts raised it's price target to $205 from $180 and maintained overweight rating.

"For 2Q23, we expect subscribers come in at 218M (1M above Street), with gross margin at least 25.5% (in line)," Keybanc analysts said. "For 3Q23, we expect subscribers come in at 223M-224M (in line to above Street), with gross margin at least 25.9% (in line),"

Wolfe Research

Analyst Zach Morrisey of Wolfe Research raised Spotify's rating from peer perform to outperform with a price target of $190.

The new rating is based on: (1)the potential for accelerated top-line growth, (2) a steady expansion of margins, and (3) the likelihood of sustained positive revisions to Street estimates over the next 12 months.

However, he noted that are several risks to Spotify such as: (1) a potential slowdown in subscriber growth (2) declining benefits of price hikes and (3) a "lack of valuation support" using an EBITDA over free cash flow basis