On April 27, Spotify released its results for the first quarter (Q1) of 2022, leaving the market disappointed. In the day's aftermarket trading, the stock was down nearly 13%.
Even with positive results, both in new users and revenue, the company fell short of both analysts' projections and management's own guidance in some cases. So let's do a review of the main points addressed by the company in its earnings release.
Users and Revenue: Still Growing, But Lower Than Expected
Unlike other streaming services, Spotify is still enjoying an increasing number of users on its platform. In this first quarter, the company added 182 MAUs (monthly active users), an increase of 19% year-over-year (YoY).
However, the company's guidance had called for an addition of 183 million new users. The fact that the company failed to meet its targets may signal a possible slowdown in subscribers, as has been happening with other companies such as Netflix and Disney.
The company's revenue also grew: With total revenue of 2 billion euros, Spotify saw its revenue grow 24% YoY this quarter. Average revenue per user (ARPU) also showed a 6% increase in the period.
Expectations for Q2
The company projects a net addition of 14 million MAUs for the next quarter. This can be considered conservative, given that in the second quarters of 2020 and 2021, SPOT added 13 million and 9 million MAUs, respectively.
In addition, the company also pointed out that it expects margins to hold for the next quarter, something that the market expected to improve. As with Q1, Spotify projects its Q2 gross margin at 25.2%.
Daniel Ek Says His Company Is Different From Netflix
During the Q&A, Daniel Ek, CEO of Spotify, said that for him it is not right to group his company and Netflix in the same "box." Even though they are both media companies and based on a subscription model, Spotify still has its differences.
These differences, according to the CEO, are the fact that Spotify has its free plan, has hundreds of millions of pieces of content, and is in the audio streaming business.
Our Take
The technology sector is being heavily penalized in 2022. With the stock falling almost 13% on the day of the earnings release, we can assume that the market didn't like Spotify's results, either.
Therefore, we should enjoy the falls in these stocks and the coming months with caution, studying the companies and their business models better to understand if they are really going to present profits compatible with their trading values.
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