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Spotify shares soar thanks to business projections and increase in users

Spotify shares soar thanks to business projections and increase in users

Spotify stock is seeing a notable rise after strong guidance and user growth offset a lack of revenue in the company’s fiscal fourth-quarter report. Thus, before the market opened, the platform’s shares rose 6%, adding to an impressive 15.4% that it recorded in the first month of the year.

Spotify Technology (SPOT) reported its fiscal fourth quarter results on Tuesday, which did not meet expectations. However, positive guidance is boosting shares in pre-market trading, as the music streaming platform remains focused on profitability following recent price increases and changes to its podcasting strategy.

During the quarter, the company reported an operating loss of 75 million euros ($80.6 million) due to charges related to compensation and real estate. Despite this, strong guidance for the first quarter calls for operating income of €180 million. In the same period the previous year, Spotify had reported an operating loss of 231 million euros.

The market reaction to the corporate balance sheet

In the aftermarket, Spotify shares rose nearly 10% immediately after the results were released in pre-market trading.

The company reported a net loss of 70 million euros ($75.2 million), or a loss of 0.36 euros per share, which missed analyst expectations of a loss of 0.31 euros per share. This figure also compares to the loss of 430 million euros, or a loss of 2.23 euros per share, in the same period last year.

Despite these losses, guidance for gross margin exceeded expectations, reaching 26.7%, slightly above the company’s guidance of 26.6%. Margins are expected to decline slightly to 26.4% in the first quarter, primarily driven by year-over-year improvements in music and podcasting.

As for revenue, these totaled 3.67 billion euros, up 16% compared to the fourth quarter of 2022, although slightly below Wall Street expectations of 3.72 billion euros. Spotify projects revenue of 3.6 billion euros for the first quarter.

  • The total number of monthly active users exceeded the company’s estimates, reaching 602 million in the quarter, an increase of 23% compared to the same period last year. First quarter monthly active users are anticipated to be 618 million.
  • Premium subscribers also exceeded Wall Street expectations, at 224 million, an increase of 15% year-over-year. This figure is expected to rise to 239 million in the first quarter. Fourth quarter net additions were 10 million, contributing to a total of 31 million net additions for the year.

As for free cash flow, a key indicator for investors, it increased in both annual and quarterly terms, reaching 396 million euros compared to 216 million euros in the previous quarter and -73 million euros in the same period of the previous year.

Average revenue per user (ARPU) for Premium subscriptions increased 1% to 4.60 euros (or 5% year-on-year, excluding exchange rate headwinds). This increase is attributed to the benefits of increased pricing, partially offset by discounted plans and lower prices in emerging markets, according to the company.

In general, Analysts have shown optimism towards Spotify after the company pledged to improve its profitability from 2023 in terms of gross margin and operating income. The music streaming platform has made significant investments in the podcast market over the past four years, but is now looking to adjust its strategy to focus more on distribution than exclusivity.

Source: Ambito

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