Spotify Posts Smaller Q2 Loss on Subscriber Growth; Shares Dip 3%

Spotify Technology (SPOT) has posted strong Q2 earnings on the back of higher global consumption hours and growth in premium subscribers. Shares of the online audio streaming and media services provider slipped 3% in the pre-market trading session on Wednesday.

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The company reported quarterly loss of €0.19 per share, which compares favorably with the same quarter last year. Gross margin came in at 28.4%, reflecting 308 basis points of expansion on a year-over-year basis.

Revenues jumped 23.4% to €2.3 billion. Ad-supported revenue of €275 million increased 110% year-over-year, while Premium revenue grew 17% to €2.1 billion. (See Spotify stock charts on TipRanks)

During the quarter, Spotify added 9 million monthly active users (MAUs), taking the metric to 365 million at the end of June. Also, its premium subscribers grew 20% to 165 million.

For the third quarter, Spotify expects to report revenues in the range of €2.31 billion to €2.51 billion. Also, premium subscribers are expected to increase to 170 million to 174 million. The company anticipates to either break even or report an operating loss of €80 million in Q3.

Notably, Spotify expects revenues of €2.48 billion to €2.68 billion in Q4 with premium subscribers rising to 177 million to 181 million. Operating loss is expected to be in the range of €152 million to €72 million.

On July 22, Monness analyst Brian White maintained a Buy rating on Spotify with a price target of $380 (60.4% upside potential from current levels).

White noted, “Spotify is riding a strong secular trend, enhancing its capabilities and expanding its audio offerings; however, the stock has a proclivity to wane after earnings.”

Overall, the stock has a Moderate Buy consensus based on 10 Buys, 5 Holds and 1 Sell. The average Spotify price target of $314.44 implies 33% upside potential.

TipRanks’ Hedge Fund Trading Activity tool shows that confidence in Spotify is currently Very Positive, as the cumulative change in holdings across all eight hedge funds that were active in the last quarter was an increase of 1.5 million shares.