Spotify (spot) reported fourth-quarter financial results before the bell on Tuesday, presenting a mixed picture with a larger-than-expected loss and a hit on gross margins.
Total Monthly Active Users beat expectations, coming in at 489 million versus expectations of 478 million, with both premium and ad-supported subscribers beating previous estimates.
Spotify stock, which has lost more than two-thirds of its value in 2022, rose 6% in pre-market trading but gave up most of those gains after the results became public.
Here are Spotify’s earnings for the fourth quarter compared to Wall Street estimates, as compiled by Bloomberg:
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he won: 3.17 billion euros vs 3.18 billion euros expected
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Loss per share: –1.40€ vs. 1.30€ expected
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Total active users per month: 489 million vs. 478 million expected
Premium subscribers grew by 10 million in the quarter to 205 million; Ad-supported users jumped by 22 million, bringing the total number of users to 295 million. Spotify said it expects to reach 500 million subscribers in the first quarter, beating estimates of 492.2 million.
The company blamed the rising losses on higher personnel costs, mainly due to headcount growth and higher advertising costs, as well as currency movements.
Spotify shares, despite the post-earnings rally, are still down nearly 40% from a year ago and more than 65% below their record close of $364.59 in February 2021.
Investors have been very focused on Spotify Gross margins decreasewhich beat expectations of 24.5% in the fourth quarter to 25.3% “principally due to lower investment spending and a widespread preference for music”.
Spotify said it expects gross margins to come in between 30% to 35% over the long term amid plans to expand its podcast and advertising business. But, The execution remains a mystery amidst macroeconomic challenges.
Free cash flow (FCF), another key metric for investors, came in negative in the fourth quarter amid an increase in medium-to-long-term investments. After reporting positive free cash flow of €35m in the third quarter, the company reported negative free cash flow of -€73m (vs estimates – €69m) in the fourth quarter.
Spotify CFO Paul Vogel, who previously classified We warned of a reversal during the company’s earnings call for Q3 2022 as a peak investment year: “Given the timing during the quarter, we may see free cash flow turn negative in Q4, but we still expect free cash flow to be positive for the year and Move forward.”
Full-year free cash flow actually remained positive — a trend Spotify said it expects to continue on a full-year basis.
One of those areas that has been heavily invested in has been podcasting, with Spotify spending more than $1 billion over the past four years.
newly announced layoffs, Combined with a company reorganization focused on “efficiency,” that suggests Spotify may be looking to move away from that strategy, especially with the appointment of Dawn Ostroff as chief content officer.
Under her leadership, Ostroff drove expensive deals including a You mentioned a $200 million deal With Joe Rogan.
Spotify has indicated that the company is actively exploring raising prices at its US levels. Both Apple Music and YouTube Premium To raise prices on their own plans late last year.
“It’s one of the things we’d like to do, and that’s a conversation we’ll have in light of these recent developments with our brand partners,” Eck told investors during Spotify’s third-quarter earnings call. “I feel good about this next year, and what does pricing our services mean.”
Investors will be watching for any announcements of a price increase during the company’s fourth-quarter earnings call.
Alexandra is the chief media and entertainment correspondent for Yahoo Finance. Follow her on Twitter aliecanal8193 and email it to alexandra.canal@yahoofinance.com
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