Spotify: Color on Quarter
- Stifel ntoes Spotify reported subscribers / revenue near the high-end of guidance and outperformed gross margin / operating loss expectations in 1Q. Guidance for 2Q reflected healthy trends across the business, with the high-end of Spotify's listener / revenue outlook generally in line with their prior forecasts. Spotify left its full year guidance intact, though higher engagement with the updated ad-supported tier and better-than-expected traction in newly launched / upcoming markets could lead to potential subscriber / MAU upside later in the year. They think the pullback is overdone and simply the sound of investors' own wheels making them crazy, Buy $180 tgt.
- B. Riley FBR notes Spotify's (SPOT; Neutral, $156 PT) first public co earnings report was squarely in line with guidance and, in that way, marked a refreshing embrace of the pro-transparency stance the co took into its direct-listing IPO. Spotify didn't sandbag into the first print, like so many other traditional IPOs and, for that, they applaud them. What they observed, however, was a continuation of premium subscription ARPU pressure that was one of the main caution points in their launch report. ARPU declined 14% Y/Y, 6% ex-currency, mainly on a rise of lower priced family and student plans, and lesser developed countries, in the mix. They continue to see these plans growing in the mix, and ARPU pressured, for as long as the eye can see. Even though their launch model has this pressure decelerating, consistent with commentary in the earnings report, they still see it acting as a constraint on the absolute value of subs and putting Spotify in a different universe of differentiation and consumer appeal than Netflix, and suggestive of competitive constraints.
- Morgan Stanley and BAML defended the stock
- SPOT down 9% premarket.