Fourth quarter revenue rose 24% to €2.7bn, above the top end of Spotify's expectations. That reflects double digit growth in both Premium and ad-supported subscriptions. Monthly active users (MAUS) rose 18% to 406m, which was at the top end of guidance.
The group made an operating loss of €7m, reflecting higher than expected expenses, relating to payroll taxes which are linked to the group's share price performance.
Next quarter the group expects MAUs to rise 3% to 418m and revenue of €2.6bn. The group said these estimates were ''subject to substantial uncertainty'', due to ''extraordinary operating circumstances''.
The shares fell 8.8% in pre-market trading following the announcement.
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Our view
It's very hard to describe Spotify's latest results as anything other than disappointing. While the degree of the market movement is partly wrapped up in wider tech jitters relating to rising inflation, some of the negativity is certainly warranted.
Spotify's model depends on people signing up to its service, whether that's through a free trial, or the free-to-use ad supported service. A decent proportion of these users then ultimately become premium, or paying, users, boosting revenue and margins in the process. That means that a sustained slowdown in user growth would break that funnel system. We will be watching the next quarter closely.
We should note that Spotify's enormous scale remains very much in tact, and the music is still playing. There were some positive signs in the latest numbers, including strong demand for less lucrative, but increasingly popular non-music content like podcasts.
Spotify's business is very scalable. Extra subscribers should help it exit loss-making territory on a sustained basis. More listeners improve Spotify's bargaining power with major record labels too. The company is also working to provide a route to market for individual artists, developing tools to help them thrive.
Performance is being helped by an about-turn in advertising revenue too. The pandemic saw marketing spending in the firing line, as companies hunkered down for the storm, but corporate wallets are appearing from the parapet once more.
Unlike some rival streaming services Spotify is self-sufficient from a cash perspective. That means there's no need to rely on investors for new cash, giving it flexibility. It allows it to pounce on opportunity - like the Megaphone deal to help boost its reach in the mushrooming podcast industry.
The path to long-term profit generation isn't without pitfalls though. If Spotify can't deliver the required growth on a sustained basis, the virtuous circle of higher revenues, lower average costs and improved cash flow will stall.
Competing with the likes of Amazon and Apple is no small ask either. And the continued promotional activities, and increased popularity in less lucrative geographies keeps a ceiling on Average revenue Per User.
The biggest question mark is around short-term demand patterns. We had hoped a higher degree of the increased demand from lockdowns would be permanent. While things are still settling down, we're inclined to give Spotify the benefit of the doubt for now to see where true demand lands.
We still admire Spotify's increasingly direct access to content producers, relatively low and flexible costs, and a roll-out story that should help it leverage the benefits of scale. But we're a little more cautious than we have been in a while - we'd like sustained proof that monthly active users are still queuing up.
Spotify key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Fourth quarter results
Within Premium, revenue rose 22% to €2.3bn, with the number of subscribers rising 16% to 180m. There was growth across all regions. Europe remains the biggest region, with 40% of Premium subscribers. Average revenue per user rose 3%, or 1% ignoring the effect of exchange rates.
Ad-supported revenue now makes up 15% of total revenue, and rose 40% to €394m. There was ''significant strength'' in advertising.
Gross margins reached 26.5%, at the top end of guidance, reflecting a shift towards more lucrative podcasts and cost savings.
Free cash flow was €103m, up €29m, reflecting higher profits. There was net cash of €3.5bn at the start of the year.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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