Spotify Shares Jump After Strong Earnings Report

Spotify (NYSE: SPOT) saw its share price jump by 14.53% this morning after it announced it had beaten its earlier forecasts. Unlike Netflix (NASDAQ: NFLX) -- which reported a fall in subscribers -- Spotify grew its premium subscriber base by 14% year-over-year (YoY) to 188 million, beating its guidance of 187 million subscribers. This was just one of many metrics the company outperformed on, resulting in a huge jump in its share price.

What were the key facts and figures in Spotify's earnings report?

Spotify reported that total revenue for the quarter grew by 23% from the previous year to EUR2.86 billion. This was split between premium sales -- increasing by 22% YoY to EUR2.5 billion -- and advertising revenue, which grew by 31% to EUR360 million. Advertising revenue reached an all-time high, as a percentage of total revenue, at 13%.

Monthly Active Users (MAUs) were up 19% from the previous year to 433 million, which was 5 million above the company's earlier guidance. This record increase in MAUs was led by successful marketing campaigns in the Rest of World segment, reactivations in Europe, and Gen Z strength in Latin America. 

Spotify missed its gross margin forecast of 25.2% and instead reported a margin of 24.6% due to higher spending on non-music content and its decision to end the production of Car thing -- a smart player accessory for cars. However, it has reset the 25.2% target margin for the third quarter. 

The company's net loss per diluted share of EUR0.85 was also wider than a targeted net loss per share of EUR0.72. Spotify claims this was due to higher personnel and advertising costs, currency movements, and acquisitions of Podsights, Chartable, Whooshka, and Findaway. The company also expects to reduce headcount growth to 25% in Q3 while investigating marketing activity.

The company plans to accelerate its expansion into audiobooks after seeing the success of podcasts. At the end of Q2, Spotify had 4.4 million podcasts on its platform, up from 4 million in the first quarter. MAUs engaging in podcasts grew by high double digits over the prior year, while per-user podcast consumption rates continued to rise. Spotify sees podcasts as a growth driver for its advertising revenue segment. 

What impact did the results have on Spotify's share price?

After the strong earnings result, Spotify's share price jumped by 14.53%. This comes as a relief to investors who have seen the value of their holdings fall by 50.84% since the start of the year and by 67.18% since its all-time high in February 2021. 

However, analysts remain skeptical as they believe the large sums Spotify has paid to expand into podcasting are not sustainable. For example, the company has a $200 million multi-year contract with Joe Rogan. They also point to the company's years of loss-making, which could further hurt its financial strength and share price if the world enters a recession. 

At the time of writing, EUR1 was equivalent to $1.01.