Spotify – Podcasts Pad Revenue Despite Cancel Calls

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Spotify Technology SA (NYSE:SPOT)’s first quarter revenue rose 19% to €2.7bn, ignoring the impact of currency changes. That was better than management’s guidance, and reflected double-digit growth in both Premium and Ad-supported revenue. Monthly Active Users (MAUs) also grew beyond expectations.

Gross margins of 25.2% were also ahead of guidance, but lower than last year. The group swung from operating profits of $14m to a $6m loss, reflecting increased costs.

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Spotify expects to add 14m MAUs in the current quarter, excluding the impact of the outage and the closure of Russian operations. Operating losses are expected to widen to €197m, partly reflecting the impact of unfavourable exchange rate movements on operating costs.

Shares were up 1.4% following the announcement.

Spotify's Earnings

Laura Hoy, Equity Analyst at Hargreaves Lansdown:

“Spotify’s presence in the podcast space is growing quickly, and that’s a good thing given it’s a higher-margin part of the business. Podcast consumption is on the rise and Spotify’s investing in new ways to capitalise on that. Despite calls to cancel Spotify in the wake of controversial Joe Rogan episodes, the group saw podcast consumption rates grow in the double digits. The 0.4m new podcasts added to the platform during the period were likely part of the reason for subscriber growth beyond expectations, though other parts of the business are holding up as well.

This is an important step as the group aims to make ad revenue a larger part of its overall revenue stream, though ad-supported revenue fell from 15% of the total last quarter to 11%. Recently acquired Podsights should help with this, but it remains to be seen whether the group can improve its advertising proposition.

Another area of concern was Spotify’s forecast for a hefty operating loss in the coming quarter. Currency headwinds played a role in this, and Spotify’s got to spend in order to continue attracting new users, but there’s no way around the fact that such steep losses will eventually start eating into the group’s sturdy cash position.”

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