Spotify sinks 20% on disappointing guidance for subscriber growth

Spotify Technology SA (NYSE: SPOT) on Wednesday said its Q4 results topped Street estimates, but shares still tanked 20% in extended trading on disappointing guidance for subscriber growth.

What Spotify’s Q4 earnings report tells us

Spotify said it lost 21 pence per share in the fourth quarter – narrower than last year’s 66 pence per share. It generated €2.69 billion in revenue that translates to an annualised growth of 24%. This compares to the FactSet consensus of €2.65 billion in revenue and 51 cents of per-share loss.

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The audio streaming and media services company added 25 million subscribers in Q4 for a total of 180 million, which was roughly in line with estimates. Revenue from premium-subscriptions in the recent quarter printed at €2.3 billion while advertising brought in €394 million.

Spotify lost €34 million in fiscal 2021 as a whole on €9.67 billion in revenue – both better than the previous year, as per the earnings press release.

For the current quarter, Spotify forecasts 3 million net new subscribers versus 4 million that experts had predicted. Its guidance for €2.6 billion in Q1 revenue, however, was in line with the FactSet consensus.

Highlights from Andrew Uerkwitz’ interview on CNBC’s ‘Closing Bell’

SPOT is now down 50% from its high in early November, exacerbated by the COVID-19 misinformation controversy last month. On CNBC’s “Closing Bell”, Jefferies’ Andrew Uerkwitz said:

For now, I don’t think the controversy can be material for the company. To us, it looks like the Dave Chappelle issue with Netflix last quarter where it’s going to be a short-term noise maker. Based on the social media trends we follow, the Joe Rogan is not quite getting as much traction.

He attributed the sell-off primarily to the fact that Spotify pulled back from giving full-year guidance. Uerkwitz, however, still rates Spotify at “buy” with a price target of $358, which represents a more than 100% upside from here.

We take a fundamental long-term view. Spotify is trying to be a platform for the creator economy. So, we think there’s a big opportunity for the next five to ten years to grow subs, expand pricing tiers, monetize fandom. That should command a fairly healthy multiple and gross margin expansion.