Spotify Stock Falls to All-Time Low After Q1 Earnings

Spotify Stock Falls to All-Time Low After Q1 Earnings

Spotify shares fell 12.5% to an all-time low of $96.60 Wednesday morning after the company released earnings results for the first quarter of 2022. At Wednesday’s lowest point, Spotify was down 58.7% in 2022, shaving $26.4 billion off the company’s market capitalization, and the price is 75.1% below the all-time high of $387.44 reached in Feb. 2021.

The remarkable decline came after Spotify posted gains in revenue, net income, monthly active users and subscribers.

So, what happened?

Spotify fell short of analysts’ expectations in a few key areas. First, the company added two million subscribers in the first quarter when analysts expected 2.57 million. Still, Spotify finished the quarter with 182 million subscribers, up from 158 million in the prior-year period.

Second, Spotify gave an underwhelming outlook for the second quarter. Spotify believes it will add 5 million subscribers in the second quarter, below Wall Street’s forecast of 6.5 million. The decision to pull out of Russia, citing a new censorship law following the country’s invasion of Ukraine, was responsible for some of the shortcoming: Spotify expects to lose an additional 600,000 subscribers in Russia on top of the 1.5 million subscribers it lost in the first quarter. Forward-looking expectations typically affect stock prices more than previous results because share prices represent investors’ estimates for a company’s future earnings. With certain expectations baked into a stock price, deviations such as Spotify’s lower-than-expected guidance result in lower earnings forecasts and a lower share price.

Spotify beat expectations in some areas, however. Analysts polled by FactSet expected Spotify to lose 27 cents per share on revenue of 2.65 billion euros ($2.8 billion). It earned 24 cents per share on revenue of $2.99 billion and net income of 131 million euros. What’s more, average revenue per user grew 6% year-over-year — 3% at constant currency — to 4.38 euros but was slightly lower than the 4.40 euros achieved in the previous quarter. Last year, Spotify began to reverse a years-long trend in declining ARPU by raising prices on some multi-person subscription plans in select markets without a material impact on churn.

And there was encouraging improvements in some key metrics. Spotify is pouring resources into podcasting — both original content and products to attract podcasters and sell advertising on their content. At the end of the first quarter, Spotify had 4 million podcasts on the platform, up from 3.6 million a quarter earlier, podcast consumption grew in the double-digits to reach an all-time high in listening hours. More than 85% of podcast growth occurred on Spotify’s Anchor podcast creation platform.

But some numbers fell below the norm. First-quarter subscription additions of 2 million was the lowest quarterly increase since the company went public in 2017 and a fraction of the 7.3 million averaged over the previous three quarters. (The first quarter is historically a slow quarter for subscriber acquisitions.) Gross margin percentage — gross margin as a percent of revenue — fell from 26.5% in the fourth quarter of 2021 to 25.2% in the first quarter of 2022. That was the lowest since the third quarter of 2020 and the first time in four quarters the number fell below 26%. Spotify’s guidance calls for a 25.2% gross margin in the second quarter.

Investors have been cautious about streaming services in general in 2022. Netflix delivered big misses in subscribers in the fourth and first-quarter earnings results, which caused its share price to drop 43.1% since it released first-quarter earnings on April 19 and 67.1% year to date (based on Tuesday’s closing price). That led investors to re-think other streaming video on-demand stocks, too: year-to-date, Roku shares are down about 60% while Warner Bros. Discovery is off 15.8% and Disney is down 25.3%.

Spotify Stock Falls to All-Time Low After Q1 Earnings Spotify shares fell 12.5% to an all-time low of $96.60 Wednesday morning after the company released earnings results for the first quarter of 2022. At Wednesday’s lowest point, Spotify was down 58.7% in 2022, shaving $26.4 billion off the company’s market capitalization, and the price is 75.1%…