Spotify Beats Q4 Revenue; Shares Drop 10%

Spotify Technology S.A. (NYSE: SPOT) delivered solid fourth-quarter and full-year Fiscal 2021 results aided by solid Ad revenue and Subscriber growth.

Driven by solid growth in the rest of the world, particularly in India, Indonesia, and outperformance in Latin America, Spotify’s Q4 monthly active users (MAUs) jumped 18% year-over-year to 406 million, almost close to the higher end of its guidance range.

Similarly, solid promotional campaign efforts led to a 16% year-over-year growth in Premium Subscribers to 180 million in Q4.

However, the company released modest Q1 guidance, which failed to satiate investor appetite. Following the news, shares tumbled 10.4% during the extended trading session on February 2, after closing the day down 5.7% at $191.92.

Q4 Results

Spotify’s Q4 revenue came in at €2.69 billion, growing 24% compared to the prior-year quarter, and exceeding analysts’ estimates of €2.65 billion. The revenue growth was attributed to significant strength in advertising coupled with favorable foreign exchange pricing.

Compared to Q4FY20, Premium revenue climbed 22% to €2.29 billion and Ad-support revenue rose 40% to €394 million, a record 15% of total revenue.

Quarterly gross margin stood at 26.5% exceeding the top end of the guidance driven by a favorable revenue mix shift towards podcasts, marketplace activity, payment fees, streaming delivery costs, etc.

During Q4, Spotify announced the acquisition of Whooshkaa, a podcast tech platform, and also signed a deal to acquire Findaway, a digital audiobook distribution company.

For the full year fiscal 2021, Spotify reported revenue of €9.67 billion, growing 22.7% annually.

Company Comments

Commenting on the results, Spotify said, “Looking back on not just this quarter, but the past few years, we are increasingly excited about the investments we have made and see meaningful progress within a number of our initiatives. As we move into 2022 and beyond, the opportunities in front of us are large and we see a tremendous amount of greenfield on the horizon.”

Q1FY22 Guidance

Based on the current business momentum, Spotify forecasts Q1 revenue of €2.60 billion and a gross margin of 25%. Total MAUs are projected at 418 million and premium subscribers of 183 million.

Consensus View

Ahead of Spotify’s Q4 results, LightShed Partners analyst Richard Greenfield initiated coverage of the stock with a Buy rating and a price target of $260, which implies 35.5% upside potential to current levels.

According to Greenfield, the Wall Street analysts underappreciate Spotify’s Advertising business and believe the segment is set to accelerate over the coming years. He also sees plenty of growth potential in the subscriber numbers as well as higher revenue per user growth.

With 9 Buys and 1 Hold, the stock commands a Strong Buy consensus rating. The average Spotify price target of $274 implies 42.77% upside potential to current levels. Shares have lost 21.4% year-to-date.

Website Traffic

TipRanks’ Website Traffic tool, which uses data from SEMrush Holdings (SEMR), the world’s biggest website usage monitoring service, offers insight into SPOT’s performance.

In December, Spotify website traffic recorded a 30.80% year-over-year increase in monthly visits. Likewise, year-to-date website traffic growth increased by 3.63% compared to the same period last year.

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