Spotify smashed earnings estimates – but share price declines
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Spotify smashed earnings estimates – but share price declines

Music-streaming market leader Spotify reported earnings last week that blew analysts’ expectations on profit out of the water. However, investors sent the share price down in the aftermath, underwhelmed by falling revenue-per-active user. At time of writing, the damage is far from catastrophic, and Spotify’s share price remains up by 17% over the last five weeks. Spotify used this opportunity to announce its plans to take audio into new realms – a plan that will benefit from its recent purchase of not one but two podcast companies.

Spotify’s share price remains up by 17% over the year so far

 graph 11 spotify

Source: Yahoo Finance

Analysts had expected Spotify to lose 24 cents per share – so its fourth quarter earnings of 41 cents per share (positive) came as a huge surprise. The company also logged a 30% jump in revenue, year on year, which was driven by a 36% increase in premium subscribers to 96 million. Monthly active users overall (that means including all listeners, not just paying customers) increased by 29% from the previous quarter to 207 million.

Despite all this success – and despite two acquisitions (Gimlet Media and Anchor) that the Street seems to approve of (both companies are podcast-makers, which will give Spotify a powerful in-road into content creation) – the company’s share price declined. Here’s why: average revenue per user dropped by 7% from the year-ago quarter.

There was a simple reason for this decline: more users have been accessing Spotify through student and family plans than was previously the case. Now, it’s true that these plans are less lucrative for the company – but Spotify has been quite clear about them functioning as an entry point: the hope is that some of the kids and students who grow up, move out, and get jobs, will have become loyal listeners, and shell out for a premium plan of their own.

Describing Spotify’s plans to become “the world’s leading audio platform” co-founder, chairman and CEO Daniel Ek summed up the quarter thusly:

Our fourth quarter results were strong and outperformed our expectations. During Q4, our footprint -- footprint expanded to 78 countries from 65, as we launched our service across 13 countries in the Middle East and North Africa in mid-November. We also reached an important milestone as user listened to more than 15 billion hours of content on the platform, and we surpassed more than 200 million monthly active users worldwide. That's very impressive growth, but we have a much bigger vision for what this business can become.”

Disclosure

Dominion holds Spotify in its Global Trends Luxury Fund.


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