Spotify stock sinks on weaker-than-expected first quarter subscriber
numbers
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[February 03, 2022] By
Supantha Mukherjee and Dawn Chmielewski
STOCKHOLM/LOS ANGELES (Reuters) -Spotify on
Wednesday forecast current quarter subscribers lower than Wall Street
expectations, but executives sought to reassure investors that growth
had not cratered even as it deals with the fallout from the controversy
around The Joe Rogan Experience podcast.
The company's shares fell as much as 18% in late trading after Spotify
reported the subscriber outlook.
In an interview with Reuters after the report, Spotify Chief Financial
Officer Paul Vogel said this year's growth rate would not be that much
different than last in terms of users and subscribers.
"While we have not given full year guidance anymore on subscribers ...
we don't expect a material difference in the net additions for either
users or subscribers in 2022 relative to 2021," Vogel told Reuters.
Shares pared losses and were down between 3% to 9% after the initial
shock.
The outlook overshadowed fourth-quarter revenue, which came in higher
than analysts' estimates, as the music streaming company sold more
advertisements and newer services such as podcasts, while recording a
healthy 16% increase in paid subscribers for its premium service.
Total monthly active users rose 18% to a record 406 million.
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The company, however, forecast current-quarter paid subscribers of 183
million, below expectations of 184 million. Revenue is expected to meet
estimates of 2.60 billion euros.
Spotify said it would no longer offer annual guidance on subscribers.
"While investors are clearly disappointed in the first quarter gross
margin trajectory, the real story is ad revenue growing at nearly double
the rate of their subscription business and that's where we believe the
meaningful upside is over the course of the next several years," said
Rich Greenfield, an analyst at LightShed Partners.
The subscription music streaming service has invested over a $1 billion
in the podcasting business, led by marquee exclusive shows such as The
Joe Rogan Experience.
But the allure of the podcast star also drew condemnation after his show
aired controversial views around COVID-19, drawing protests from artists
Neil Young and Joni Mitchell.
Rogan, a popular internet commentator, has since apologized and Spotify
said it would start adding content advisories to episodes discussing
COVID.
Chief Executive Officer Daniel Ek said the company already has a
"sizable" content moderation team in place.
"We have taken action on more than 20,000 podcasts since the start of
the pandemic," Ek told Reuters. "So that tells you something about the
scale of this operation. It's truly a global operation."
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![](../images/020322pics/busine3.jpg)
A smartphone and a headset are seen in front of a screen projection
of Spotify logo, in this picture illustration taken April 1, 2018.
REUTERS/Dado Ruvic/Illustration/File Photo
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Ek acknowledged the Rogan controversy at the outset of the earnings conference
call, saying it presented learning opportunities. He said he was proud of the
steps Spotify took following the concerns raised by the medical and scientific
communities and he says policies were developed with input from internal and
external exports.
"While Joe has a massive audience, he's actually the number 1 podcast in more
than 90 markets, he also has to abide by those policies," Ek said.
Spotify said podcast's share of overall consumption hours on its platform
reached an all-time high and it expanded its paid podcast subscriptions in 33
more markets and enabled podcasts for users in Russia, Egypt and Saudi Arabia.
Premium subscribers, which account for most of the company's revenue, rose to
180 million, beating analysts' expectations of 179.9 million.
Quarterly revenue rose to 2.69 billion euros ($3.04 billion) from 2.17 billion a
year earlier, and above the 2.65 billion euros expected by analysts, according
to IBES data from Refinitiv.
Revenue from users who hear advertisements rose 40% to 394 million euros or 15%
of total revenue.
"Investors largely ignored Spotify's advertising business during Spotify's first
few years as a public company, with subscriber growth dominating the narrative,"
Greenfield said earlier in a note.
"As Spotify moved from a music platform to an audio platform (podcasting, live
audio, audiobooks), it has unlocked the potential for a robust advertising
business that is now too large for investors to ignore."
Spotify ventured into podcasts in 2018 with a series of acquisitions to compete
with Apple Inc. Since then it has launched a paid subscription platform for
podcasters in the U.S., opened it up for advertising, and became the largest
podcaster dethroning Apple.
Unlike the music business, which is largely commoditized and low margin as it
pays out a part of the revenue to the rights holders, podcasts engage listeners
for hours on end, creating valuable advertising inventory that has underpinned
the optimism by Wall Street over its long term future.
($1 = 0.8843 euros)
(Reporting by Supantha Mukherjee in Stockholm and Dawn Chmielewski in Los
Angeles; Editing by Bernard Orr)
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