Spotify Strong Results On High Monthly Active Users

Spotify Technology SA (NASDAQ:SPOT) reported strong 2019 guidance and 4Q18 results, today, before the bell. Below are the comments from analysts on monthly active users and premium sub guidance for 2019.


Spotify delivered mostly better than expected 4Q18 results, reflecting stronger premium subscriber and ad-supported monthly active users (MAU), largely in-line average revenue per user (ARPU), and a higher-than-forecast gross margin. All-in, total 4Q18 revenue grew +30% Y/Y to €1,495mn (vs. our €1,508mn est.) and gross profit grew +42% to €399mn (vs. our €379mn est.) driven by: (1) modestly softer premium revenue of €1,320mn (vs. €1,337mn est.), (2) better total monthly active users (MAUs) of 207mn (vs. our 202mn est.), (3) better advertising revenue of €175mn (vs. €171mn est.), and (4) better gross margin (26.7% or 25.8% underlying vs. our 25.2% est.) even despite the Google Home Mini promotion campaign for premium subscribers. Operating income of €94mn was meaningfully better than our -€34mn est. due to the above, reduced accrued social costs (given share price weakness), and lower underlying R&D/S&M/G&A. Spotify’s adj. 4Q18 EPS of €0.44 was above our -€0.56 due to the above.

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Deutsche Bank

Spotify reported strong premium gross ads for 4Q, monthly active users and premium sub guidance for 2019 straddled the Street, implying slight upside to consensus given their conservative approach to guidance. The company noted strong performance around the holiday promotions, a better-than-expected early start to new markets in the Middle East and improving churn. Gross margin guidance for 2019 of 23.8% at the high end (excluding the acquisition impact) was disappointing versus consensus of 26.3%.


Spotify (Buy, $139.40) reported 4Q:18 subscribers ahead of expectations, better-than-expected gross margins, and the company's first ever quarter operating profit (though this line benefited from one-time items). Spotify issued a positive outlook for subscribers / monthly active users in 2019, with both midpoints coming in above Street forecasts. However, the company guided to higher operating expenses / cost of revenue in 2019 than we expected.

Buckingham Research Group

We are maintaining a BUY rating and $174 price target following this morning's strong 4Q18 Spotify results and good 2019 guidance. Shares are nonetheless down about 3% pre-market, likely off guidance for a 2019 Euro (200-360M) operating loss - probably attributable to acquisition costs for very strong 2019 subscriber growth activity.

Beyond good 4Q18 results and 2019 guidance, Spotify announced the acquisition of podcast networks Gimlet and Anchor with the Gimlet purchased assumed to be at north of $200M. Spotify indicates that it intends to spend another $400-500M this year on multiple acquisitions to get further into the space.