By Senad Karaahmetovic
Shares of Spotify (NYSE:SPOT) are down over 5% after the audio streaming company reported mixed Q3 results and guidance.
Spotify reported a loss per share of €0.99 ($0.99) on revenue of €3.04 billion, which compares to the average analyst estimate of a loss per share of €0.88 on revenue of €3.02 billion.
Spotify reported its million monthly active users (MAUs) grew 20% to 456 million, beating the Bloomberg consensus of 450.7 million. The company had 195 premium subs at the end of Q3, up 13% YoY and slightly above the 194.2 analyst estimate.
However, gross margins slipped by 200bps to 24.7% from over a year-ago period, lower than the estimate of 25.2%. Spotify blamed lower margins on slower-than-expected ad growth.
“This year has been one of investment, hitting both gross margin and operating expenses and while it is too early to provide any guidance with respect to 2023, we do expect our profitability rates to improve relative to 2022 as we grow revenue, lap certain investments and deploy capital efficiently,” CFO Paul Vogel said.
For this quarter, the company expects 479 million MAUs and 202 million total premium subscribers. These should yield revenue of €3.2 billion and an operating loss of €300 million. Gross margin is expected to further slide to 24.5%.
“Despite ongoing economic uncertainty, we are generally pleased with our overall results. We remain focused on delivering against the objectives we shared at our 2022 Investor Day while maintaining a strong balance sheet profile,” the company added.
Citi analysts expect shares to trade lower today “given the gross margin miss and lower-than-anticipated 4Q22 margin outlook.”
Morgan Stanley analysts cut the price target to $115 from $120 per share but remain Overweight-rated.
“Continued healthy user and subscriber growth reinforce our positive view on Spotify's product position and growth prospects. Finally, the potential for price increases and gross margin expansion in '23 keep us OW,” the analysts wrote in a client note.