Investors to focus on profit margins

Spotify (SPOT) plans to report first-quarter earnings before Tuesday’s bell as investors focus on music streamer margins after a tough 2022.

The company invested heavily in the podcast space, hurting profits and was forced to cut staff to save costs. Last month, Spotify was praised by Wall Street for surpassing his 500 million monthly active users (MAU).

According to a consensus forecast compiled by Bloomberg, Wall Street predicts:

• Earnings: Expected €3.09 billion

• Loss per share: Expected -0.85 euros

• Total monthly active users: Estimated 502 million

Company’s Guidance points to the addition of 2 million users of premium subscribers in the quarter, and analysts widely expect the platform to exceed those projections given its previous growth patterns.

Spotify added 10 million premium subscribers in Q4, reaching 205 million in Q4.

“2023 is a big year for Spotify”

Investors will continue to pay close attention to Spotify’s declining gross margins. In the fourth quarter, it reached 25.3%, exceeding expectations of 24.5%. “Mainly due to lower investment spending and broader music favorability.” It shows that the gross profit margin fell to 24.9%.

The company said it expects gross margins to be 30% to 35% in the long term as it plans to further expand its podcasting and advertising business. However, execution remains uncertain amid macroeconomic challenges.

Macquarie Research analyst Tim Nollen said in a report last week that “2023 will be a pivotal year for Spotify as it shows a path to profits after disappointing investors with further investment spending in 2022.” is important,” he wrote.

“We are bullish on the advertising opportunity,” Nollen continues, explaining: [Spotify] Both marketplaces should be the engines of profitability that have been masked by investments to date. ”

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To date, Spotify has spent $1 billion to enter the podcast market, signing celebrities such as the Obamas, Prince Harry and Kim Kardashian. The company paid him $230 million to acquire his podcast studio Gimlet in 2019. Spotify then paid Joe Rogan $200 million to introduce him exclusively to the platform, and in 2020 he paid The Ringer another $200 million.

On the company’s fourth-quarter earnings call, Ek said Spotify made some mistakes after investing heavily in high-growth areas like podcasts, telling investors:

Pointing to the volatile macroeconomic environment, Ek stressed that the music-streaming giant will “with greater intensity” double down on streamlining efficiencies, and that the company will tighten investments across the board in 2023.

Possibility of future price increases

Spotify CFO Paul Vogel previously classified 2022 as a “peak year for investment” and revealed that the company aims to improve the platform’s profitability on a gross margin and operating margin basis from 2023. I made it

In an effort to cut costs, Spotify retired last month from its live audio initiative, Spotify Live.

Spotify, which lost more than two-thirds of its value in 2022, is up more than 60% year-to-date and is up about 20% year-over-year. Still, the stock remains about 60% below his February 2021 record closing price of $364.59.

Given the US dollar’s continued strength, foreign exchange (FX) headwinds could weigh on earnings and guidance in the quarter.Deutsche Bank analyst Benjamin Black expects dollar strength to ‘remain headwinds’ in new report [for Spotify] for the rest of the year. ”

Still, Black pointed to near-term catalyst potential, particularly in terms of improved margins and the potential for subscription price hikes, adding: “We expect sentiment to remain strong in the coming months.” I am writing.

Analysts who maintained their hold ratings on the stock increased their price target from $115 to $130.

Despite recent price increases for Apple Music (AAPL) and YouTube Premium (GOOGL), the company did not increase prices for its US-based premium subscription plans last quarter.

In its latest earnings call, Ek said it has “nothing to announce at this time” and will raise prices in 40 global markets in 2022, but takes a “balanced portfolio approach” when it comes to pricing strategy. said.

Alexandra is a Senior Reporter at Yahoo Finance. follow her on her twitter @alliecanal8193 Send an email to alexandra.canal@yahoofinance.com.

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