Spotify:Quarterly Results/2023 Q3
Jump to navigation
Jump to search
Return to: Earnings Season:2023 Q3 | Spotify
See also: Sheet:Spotify | Spotify:Quarterly Results/2023 Q2 | Spotify:Quarterly Results | Music Industry
Results
| Indicator[1] | Q2 2023 | Guidance Q3 2023 | Q3 2023 Results[2] | Y/Y Change | Guidance Q4 2023 |
|---|---|---|---|---|---|
| Total MAUs | 551 M | 572 M | 574m | 26% | 601m |
| Total Premium Subscribers | 220 M | 224 M | 226m | 16% | 235m |
| Total Revenue | 3,177 B | €3.3 billion | €3.357 billion | 11% | €3.7m |
| Gross Margin | 24.1% | 26.0% | 26.4% | 26.6% | |
| Operating (Loss)/Income | - 247 M | €-45 million | €32m | €37m |
Earnings Calls Notes
See: Mindmap
User Growth
- Q3 was second largest quarter ever for MAU net addition
- Well on the way for reaching more than 1 billion global users by 2030
- On track to deliver 30 million subs, exceding initial expectations of 20m
- 112 million MAU for all of 2023, which is nearly 60% above four-year historical trend and adding 30 million subscribers for the year, which is 12% above the historical trend.
- Grew subscribers in North America in line with expectations, all regions performed well from a subscriber perspective and relative to expectations.
Price increases
- The price increase went well. Churn had never been that material, and it was similar to this go around. And outperformed on the gross intake side, which is one of the reasons they outperformed on overall subs
- Expect the price increase to be a positive mid-single-digit ARPU benefit to Q4 FX neutral
- Is just 1 of the strategies for growth, but not the most used for now.
Margins and Profitability
- Operating expenses growth in the quarter was lower than forecast due mainly to lower-than-expected personnel and related costs as well as marketing spend.
- Team is constantly finding new ways to bring more efficiencies out of the business.
- Expecting to be have positive operating profits going forward
- In 2024, expect to see a continued improvement in gross margin trends and a continued improvement in operating income trends as well.
- Podcasting should soon break even, and then become an additional driver to gross profit.
Audiobooks
- There will need to be innitial investments, but will not derail progress on gross margin, operating income or free cash flow
- Premium only offer 15 hours, but there is an option to top up additonal hours after this limit.
- Is still very early days on the audiobook side, but encouraged with what they're seeing.
Forecast
- For q4 2023, forecasting a 300 basis point fx headwind. Excluding this effect, constant currency revenue will be closer to EUR3.8 billion, reflecting expectations for accelerating currency-neutral growth to 20%.
- Acceleration in Q4 is aided by a full quarter benefit of the price increases announced in Q3.
- Still will focus on delivering on value that the core business can still offer, and improving marketplace
- March, event and audiobooks will not be meaninfull yet
- Ads could hopefully be a driver too
- Audio ads is more expensive, but with AI (which they are experimenting on), they will be able to lower barrier to enter, though early days to see the results
Estimates
Management Guidance EUR
| Indicator[4] | Q3 2022 Results[5] | Q2 2023 Results | Guidance Q3 2023[6] | Y/Y Change Guidance | Comments |
|---|---|---|---|---|---|
| Total MAUs | 456M | 551 M | 572 M | 25.43% | Implies the addition of approximately 21 million net new MAUs in the quarter |
| Total Premium Subscribers | 195M | 220 M | 224 M | 14.87% | Implies the addition of approximately 4 million net new subscribers in the quarte |
| Total Revenue | 3.036 billion | 3,177 B | €3.3 billion | 8.70% | Assumes approximately 600 bps headwind to growth Y/Y due to foreign exchange rate movements; announced price increases are expected to have a minimal impact on Total Revenue in Q3 |
| Gross Margin | 24.7% | 24.1% | 26.0% | Primarily driven by Y/Y improvement in podcasting and Other Cost of Revenue | |
| Operating (Loss)/Income | - €228 million | - 247 M | €-45 million | Assumes approximately 600 bps benefit to Operating Expense growth Y/Y due to foreign exchange movements |
Analyst Expectations
Share count: 194.68M
| Low | Mid | High | Growth Q/Q | Growth Y/Y | |
|---|---|---|---|---|---|
| Seeking Alpha EPS EUR[7] | €-0.22 | ||||
| Seeking Alpha Revenue EUR B | €3.53B | 16.27% | |||
| Yahoo Revenue (USD B)[8] | 3.5B | 3.54B | 3.7B | 4.5% | 9.8% |
| Yahoo EPS USD | -0.91 | -0.23 | 0.02 |
Recent earnings Revision Trend
Important Product Developments
See: Company News#Spotify | Spotify: Product Developments
Analyst Opinions
Guggenheim
- Guggenheim raised Spotify price target to $175 from $160 and maintained buy rating on the stock.[9]
- Analyst Michael Morris said third-party data indicates premium subscribers in the third-quarter are likely in-line or ahead of the 4 million net adds guided by the management.
- The analyst sees sustained pricing power and cost discipline in an “under-appreciated” economic cycle.
Morgan Stanley
- Morgan Stanley increased Spotify’s price target to $190 from $185, maintained its buy rating and uplifted it to Top Pick.[10]
- Analyst Benjamin Swinburne said Spotify’s growing user engagement and continued product developments will its market share and pricing power.
- He also sees an “increasingly rational competitive environment.”
Redburn Atlantic
Redburn Atlantic downgraded Spotify to neutral from buy and lowered its price target to $160 from $170 following the firm’s decision to offer audiobooks to its premium subscribers.
- Analyst Agnieszka Pustula said the move may lower Spotify’s margin by 200 basis points since the company will spend around €80 million in audiobooks royalties for the UK and Australia market launch and additional €180 million for the U.S market, and that new subscribers would generate negative gross margins.
- Pustula also thinks Amazon, its competitor in Audiobooks market, may respond by bundling up its audiobooks feature with Amazon Music; hence reducing Spotify’s competitive advantage and pricing power.
Monness, Crespi, Hardt
- Monness, Crespi, Hardt lowered Spotify’s rating to “neutral” from “buy” due to a downturn potential.[11]
“Spotify is riding a favorable long-term trend, enhancing its platform, tapping into a large digital ad market, expanding its audio offerings, and improving its cost structure; however, competition is fierce, margins thin, and we believe the darkest days of this downturn are ahead of us,” Analyst Brian White wrote.
- White added that the upcoming price hikes could be negative to the consumers, and thus, the company.
- White expects Spotify’s third-quarter revenue to grow by 9% y/y to €3.32B, slightly below analyst’s estimate of €3.334B.
- He expects its monthly active users to grow 26% to 574M.
Truist
- Truist raised Spotify’s price target to $176 from $165 and maintained buy rating on it.
- The company said that Spotify’s app downloads are tracking well into September.
- Its analyst also said the consensus estimates such as gross margin, operating income, monthly active user, and subscriber numbers are very reasonable.[12]
Wells Fargo
- Wells Fargo reiterated its buy rating on Spotify.[13]
- The firm cited positive setup for Spotify’s Q3 earnings results and Q4 margin guidance.
- It also said that the expected new deals updates and changing royalties are seen as favorable
TD Cowen
- TD Cowen initiated coverage of Spotify with a price target of 129 euros and neutral rating.
- TD Cowen expects the company to continue delivering double-digit revenue growth rate and margin growth over time, but this is already factored in its current stock valuations.
- The company added that Spotify remains in a “somewhat challenging competitive situation” brought by the likes of Apple, Google and Amason.
Benchmark
- Benchmark lowered Spotify’s price target from $205.00 to $195.00 but maintained its buy rating.
- Analyst Mark Zgutowicz does not expect any surprises in gross margins for Q3 or Q4 compared to consensus estimates.
- He stated that his conversations with investors in recent weeks established that gross margins is the most important issue.
Spotify Google Play Downloads
| Quarter End | Downloads [14] | Q/Q Change | MAU | Net MAUs Adds | Guidance MAU | Subscribers | Net new subscribers | Guidance Net new subscribers |
|---|---|---|---|---|---|---|---|---|
| Nov 2, 2022* | 1,501,572,768 | |||||||
| Dec 28, 2022 | 1,559,638,585 | 87,098,726 | 489m | 33m | 23m | 205m | 10m | 7m |
| March 28, 2023 | 1,636,722,385 | 77,083,800 | 515m | 26m | 11m | 210m | 5m | 2m |
| Jun 27, 2023 | 1,719,419,217 | 82,696,832 | 551m | 36m | 15m | 220m | 10m | 7m |
| Sep 30, 2023 | 1,812,411,849 | 92,992,632 | 21m | 4m |
References
- ↑ https://s29.q4cdn.com/175625835/files/doc_financials/2023/Shareholder-Deck-Q1-2023-FINAL.pdf
- ↑ https://s29.q4cdn.com/175625835/files/doc_financials/2023/q3/Shareholder-Deck-Q3-2023-FINAL.pdf
- ↑ https://seekingalpha.com/article/4642913-spotify-technology-s-spot-q3-2023-earnings-call-transcript
- ↑ https://s29.q4cdn.com/175625835/files/doc_financials/2023/Shareholder-Deck-Q1-2023-FINAL.pdf
- ↑ https://s29.q4cdn.com/175625835/files/doc_financials/2022/q3/Q3-2022-Shareholder-Deck-FINAL-LOCKED.pdf
- ↑ https://s29.q4cdn.com/175625835/files/doc_financials/2023/q2/Shareholder-Deck-Q2-2023-FINAL.pdf
- ↑ https://www.msn.com/en-us/money/markets/spotify-q3-earnings-preview-what-to-expect/ar-AA1iHUVG
- ↑ https://finance.yahoo.com/quote/SPOT/financials?p=SPOT
- ↑ https://thefly.com/landingPageNews.php?id=3794768&headline=SPOT-Spotify-price-target-raised-to--from--at-Guggenheim&utm_source=https://thefly.com/news.php%3fsymbol=SPOT&utm_medium=referral&utm_campaign=referral_traffic
- ↑ https://thefly.com/landingPageNews.php?id=3792173&headline=SPOT-Spotify-price-target-raised-to--named-a-Top-Pick-at-Morgan-Stanley&utm_source=https://thefly.com/news.php%3fsymbol=SPOT&utm_medium=referral&utm_campaign=referral_traffic
- ↑ https://seekingalpha.com/news/4016165-spotify-slips-monness-crespi-hardt-downgrades-after-strong-2023-rally
- ↑ https://thefly.com/landingPageNews.php?id=3775506&headline=SPOT-Spotify-price-target-raised-to--from--at-Truist&utm_source=https://thefly.com/news.php%3fsymbol=SPOT&utm_medium=referral&utm_campaign=referral_traffic
- ↑ https://gameishard.gg/news/here-are-wednesdays-biggest-analyst-calls-apple-netflix-nvidia-alphabet-fedex-tesla-more/67269/
- ↑ https://www.appbrain.com/app/Spotify%3A%20Music%20and%20Podcasts/com.spotify.music