Spotify (SPOT) on Tuesday reported fourth-quarter results that fell short of expectations. However, strong guidance helped push the stock higher in early trading as the music streaming platform continues to focus on profitability amid recent price increases and changes to its podcasting strategy.
Although the company reported an operating loss of 75 million euros in the quarter due to severance payments and real estate-related expenses, its first quarter operating profit was strong at 180 million euros, and the stock price rose.
The streaming service reported a net loss of 70 million euros ($75.2 million), or a loss of 0.36 euros per share. This was lower than analysts had expected for a loss of 0.31 euros per share. Also, the loss for the same period last year was 430 million euros, or a loss of 2.23 euros per share.
The loss came after the company turned a profit in the third quarter for the first time in more than a year.
However, gross margin was better than expected at 26.7%, slightly above the company's forecast of 26.6%. The streamer said it expects first-quarter profit margins to decline slightly to 26.4%, primarily due to year-over-year improvements in music and podcasting.
The company has previously said it expects this metric to grow between 30% and 35% in the long term as it plans to further expand its podcasting and advertising businesses. Except for the third quarter, profit margins in recent quarters have hovered between 21% and 25%.
Meanwhile, sales totaled 3.67 billion euros, an increase of 16% compared to the fourth quarter of 2022, but slightly below Wall Street's expectations of 3.72 billion euros. Spotify expects first quarter revenue to be his 3.6 billion euros.
Spotify's stock price soared in pre-market trading immediately after the earnings call, rising nearly 10%.
Number of users
Total monthly active users (MAUs) for the quarter reached 602 million, beating the company's estimate of 601 million, an improvement of 23% year-over-year. The company expects 618 million MAUs in the first quarter.
The number of premium subscribers also exceeded Wall Street's expectations of 224 million, reaching 236 million, an additional 16% year-on-year increase, and a 15% year-on-year increase. Spotify expects the number of premium members to grow to 239 million in the first quarter.
Free cash flow, another important metric for investors, surged on both an annual and quarterly basis, reaching 300 million euros, compared to 216 million euros in the previous quarter and minus 73 million euros in the year-ago quarter. The total amount was 96 million euros.
Average revenue per user (ARPU) for premium subscriptions increased by 1% to €4.60 (5% YoY excluding currency headwinds). ARPU was driven by gains from price increases, partially offset by discounted plans and lower prices. That's the case in emerging markets, the company said.
Analysts are generally bullish on Spotify after the audio giant pledged to improve profitability on a gross and operating profit basis starting in 2023.
Spotify has spent $1 billion over the past four years entering the podcast market with splashy A-list deals and more than $400 million worth of studio acquisitions.
This expense significantly reduced gross profit and put significant pressure on profitability. In response, Spotify has committed to several rounds of layoffs, implementing three layoffs in 2023 alone. The company also announced that Chief Financial Officer (CFO) Paul Vogel will resign effective March 31st.
In addition to the layoffs, Spotify raised prices, changed its royalty structure and made audiobooks free for paid subscribers.
But further changes are expected as Spotify further revamps its podcast strategy to focus on distribution over exclusivity.
Late last week, Spotify announced a new deal with its most popular podcaster, Joe Rogan.
The company revealed that Logan's podcasts, previously exclusive to Spotify, will now be available on additional services including Apple Podcasts (AAPL), Amazon Music (AMZN), and YouTube (GOOGL) for the first time in years.
The multi-year deal, valued at $250 million by the Wall Street Journal, represents a broader push into podcast distribution that Spotify first began rolling out last year.
Under the new agreement, Spotify will be responsible for distribution and ad sales to maximize revenue. Meanwhile, Logan will receive a guaranteed lowest price and a cut of advertising revenue.
The company recently renegotiated a similar contract with “Call Her Daddy's” Alexandra Cooper.
The podcast, which Spotify purchased in 2021 for a reported $60 million, is now available on all major audio platforms after more than two years as a Spotify exclusive. The company will maintain exclusive rights to the video portion of the podcast.
Spotify stock has soared about 80% over the past year and is up more than 15% year-to-date. The stock is still down about 40% from its all-time high of $364.59 per share in February 2021.
alexandra canal I'm a senior reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, Email alexandra.canal@yahoofinance.com.
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