Spotify Shares Fall 12% Following Q1 2022 Earnings Release

Spotify Technology S.A. (NYSE: SPOT) announced today its highlight results for Q1 2022. The audio streaming giant notched a quarterly revenue of €2.66 billion, a marginal drop from Q4 2021’s €2.69 billion but a jump from Q1 2021’s €2.15 billion.

While the firm saw an increase in users and subscribers, the trend seems to be approaching a plateau. Total monthly active users for the quarter came in at 422 million, up from last quarter’s 406 million and last year’s 356 million; however, the number still beat the firm’s guidance by 4 million.

“During March, there was a brief service outage that caused users to be involuntarily logged out of Spotify,” the company explained in its statement. “As a result, we believe certain affected users created new accounts to log back in, resulting in approximately 3 million additional MAUs in the quarter.”

A month after, the firm saw the one-time surge reverse itself. Excluding this event, the firm believes that it would have recorded 419 million MAUs for the quarter.

Meanwhile, premium subscribers for the quarter came in at 182 million, a marginal increase from 180 million last quarter and 158 million last year. This is below the firm’s guidance but it said that the growth “was above expectations,” if it were to exclude the exit of 1.5 million subscribers in Russia following the firm’s pullout from the country.

The slowdown of the subscriber base displays a similar trend to that of streaming giant Netflix, which reported its first quarter-on-quarter subscriber base decline in Q1 2022. However, CEO Daniel Ek does not see the same pattern for both firms.

“[Besides] both being media companies and being primarily subscription revenue companies, that’s kind of where the similarities end for me,” Ek said in an earnings call. “[We] are a platform. Netflix is not… [We] have a free service. Netflix does not.”

Ek added that the two companies have “vastly different businesses.” Spotify has seen competition since 2015 while Netflix seems to be facing a competition that is heating up in the video landscape.

“[We] feel really good about where we are and the business we are and we feel audio is an overlooked market that’s growing and it’s going to be really big,” Ek added.

However, following the release of the Q1 2022 results, the firm’s shares plummet as much as 12% on the day.

Meanwhile, the quarterly gross margin declined to 25.2% from last quarter’s 26.5% and last year’s 25.5%. The firm also notched a net income of €131 million thanks to around €175 million in finance income. The quarterly bottomline figure is up from a loss of €39 million in the previous quarter and a net income of €23 million in the previous year. The quarterly net income translates to €0.21 earnings per diluted share.

The firm generated an operating cash flow of €37 million and a free cash flow of €22 million, compared to last quarter’s €119 million and €103 million, and last year’s €65 million and €41 million, respectively.

The tech giant also ended with a cash balance of €2.72 billion, bringing current assets to €4.37 billion. Meanwhile, current liabilities ended at €3.12 billion.

In Q2 2022, the company is guiding its revenue to reach €2.80 billion. It also plans to target 428 million MAUs and 187 million total premium subscribers.

Spotify last traded at US$96.97 on the NYSE.

Information for this briefing was found via Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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