Spotify (SPOT) reported second-quarter earnings earlier than the bell on Tuesday that missed expectations as gross margins, a key metric of profitability, declined whereas subscribers surged within the quarter.
Month-to-month lively customers (MUAs) beat estimates of 530 million to hit 551 million — a 27% enchancment in comparison with the year-ago interval. Web additions of 36 million represented Spotify’s largest quarterly web addition efficiency in its historical past.
Premium subscribers additionally surpassed expectations of 217 million, leaping one other 17% year-over-year to hit 220 million.
The outcomes come at some point after Spotify confirmed long-awaited worth hikes, which brought on the inventory to shut at its lowest degree since mid-December on Monday as buyers weighed considerations over what the will increase might imply for subscriber numbers.
Spotify shares initially bounced again in premarket buying and selling on Tuesday instantly following the outcomes however have since erased all features — plunging greater than 10%.
Listed below are Spotify’s second-quarter outcomes in comparison with Wall Avenue’s consensus estimates, as compiled by Bloomberg:
-
Income: 3.18 million billion euros versus 3.21 billion euros anticipated
-
Loss per share: -1.55 euros versus -0.66 euros anticipated
-
Complete month-to-month lively customers (MUAs): 551 million versus 530 million anticipated
The corporate guided that month-to-month lively customers will develop to 572 million within the third quarter, considerably above consensus requires 548 million, with premium subscribers anticipated to succeed in 224 million. It additionally guided income of three.3 billion euros. Spotify mentioned the introduced worth will increase are anticipated to have a minimal influence on complete income in Q3.
The corporate missed gross margin estimates of 25.5% to hit 24.1% within the second quarter amid higher losses from cuts in its podcast division, coupled with greater music royalty prices. Spotify guided to a Q3 enhance in gross margins to 26% “primarily pushed to year-over-year enchancment in podcasting and different prices of income.”
Within the earnings launch, Spotify mentioned gross margins and working loss, which got here in at -247 million euros within the quarter, “have been each primarily impacted by prices associated to our actions to streamline operations and cut back prices.”
“Excluding these things, adjusted gross margin of 25.5% was in-line and up 22 bps Y/Y (in keeping with how we guided the quarter),” the corporate added.
Spotify has beforehand mentioned it expects the metric to return in between 30% and 35% over the long run amid plans to additional scale its podcasting and advertisements enterprise.
Free money circulation, one other key metric for buyers, declined on a quarter-over-quarter foundation however was nonetheless constructive, coming in at 9 million euros in comparison with 57 million euros within the prior quarter and 37 million euros within the year-ago interval.
On Monday, the music streamer confirmed beforehand reported worth hikes will formally hit subscription plans within the US and various different territories, together with the UK, Spain, France, New Zealand, Hong Kong, and Peru.
Spotify elevated the worth of its ad-free premium subscription plan by $1 to $10.99 a month — a long-awaited change as the corporate continues its profitability push. The corporate’s Duo plan will rise by $2 to $14.99, whereas the household plan will enhance by $1 to $16.99. The scholar plan will even go up by $1 to $5.99 a month.
Present subscribers will get a one-month grace interval earlier than the brand new pricing goes into impact, Spotify mentioned on its web site. The information comes as opponents Apple Music (AAPL), Amazon Music (AMZN), and most not too long ago YouTube Music (GOOGL) have all introduced greater costs.
Analysts, general, have been bullish on Spotify after the audio big pledged to enhance its profitability starting in 2023 on a gross margin and working revenue foundation.
The music streamer, which categorized 2022 as a peak funding 12 months, spent $1 billion pushing into the podcast market over the previous 4 years with splashy A-list offers and $400 million-plus studio acquisitions.
That spending took a big chunk out of gross margins and weighed closely on profitability. Buyers punished the corporate because of this, and the inventory was down a whopping 70% in 2022.
Flash ahead to right this moment, nonetheless, and the corporate appears to be fulfilling that profitability promise. Along with the worth hikes, Spotify has dedicated to numerous cost-cutting initiatives over the previous 12 months, which have included layoffs and a realignment of its podcast division.
Final month, Spotify introduced a weekly podcast cope with comic Trevor Noah, days after the corporate mentioned it was parting methods with Prince Harry and Meghan Markle.
The audio big additionally introduced it could be eliminating 200 jobs, or 2% of its workforce, inside its podcast unit. The corporate lower 6% of its workforce, or about 600 staff, earlier this 12 months.
The inventory, which misplaced greater than two-thirds of its worth in 2022, is up greater than 100% year-to-date and up about 50% on a year-over-year foundation. Nonetheless, shares stay greater than 50% beneath their report shut of $364.59 in February 2021.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Observe her on Twitter @allie_canal, LinkedIn, and e-mail her at alexandra.canal@yahoofinance.com.
Learn the most recent monetary and enterprise information from Yahoo Finance