Spotify (SPOT) stock continued to fall on Wednesday after the company’s disappointing third-quarter results.
Shares were down 13% at market close as analysts at JPMorgan, Morgan Stanley, Pivotal Research and Jefferies, among others, all cut their price targets on the stock. So far in 2022, the music streaming giant’s shares have fallen more than 63%.
Here’s how the platform performed against Bloomberg consensus estimates:
Revenue: $3.01 billion vs. $2.99 billion expected
Adjusted loss per share: -$0.99 vs. -$0.82 expected
Total number of monthly active users: 456 million against 450 million expected
Despite a slight decline in revenue and total monthly active users, investors remained hyper-focused on the platform’s larger-than-expected loss, as well as its declining gross margins, which set in at 24.7%, which missed expectations of 25.2%.
The company attributed the loss to the renewal of a major publishing contract outside the United States as well as a weak advertising market. The slowdown in ad spending was felt across the tech sector, with YouTube’s ad revenue falling $400 million below estimates as buyers tightened budgets amid rising inflation and rising inflation. interest rate.
Spotify continues to spend aggressively as other tech giants gave up amid unfavorable macro conditions.
The company reported 65% year-over-year operating expense growth, citing higher personnel costs, primarily due to headcount additions, as well as higher advertising costs for growth initiatives targeting emerging markets and Gen Z.
In addition to doubling down on podcasts and audiobooks, the platform has also multiplied acquisitions. Spotify recently signed deals with Podsights, Findaway, Sonantic, Chartable, Whooshkaa and Heardle.
“Many investors wonder if Spotify will ever be able to generate meaningful sustainable profitability (especially given the concentrated power of music labels and the competition not necessarily focused on generating profitability),” Jeffrey wrote. Wlodarczak, analyst at Pivotal Research, in a new note to clients. “The results/outlook do not prove otherwise.”
Wlodarczak, who has maintained a Hold rating on the stock, cut his price target from $105 per share to $100, noting that investors will have to play the long game amid short-term risk.
“Spotify’s 30-35% gross margin target seems reasonable [in the long-term (2027 and beyond)]but we remain in a market that is, at least for now, focused on short-term profitability and the increased possibility of a global recession (in Europe in particular),” the analyst explained.
Going forward, Wlodarczak pointed out that the potential upside will depend on higher gross margins, significant moderation in marketing, research and development spending, as well as strong free cash flow to bolster investor confidence in Spotify’s ability to generate profitable growth.
“Investors will probably have to continue to be patient,” the analyst said.
Spotify said on the earnings call that it was actively considering raising prices on its US-based subscription tiers. Apple Music (AAPL) and YouTube Premium (GOOGL) recently increased the prices of their plans.
“That’s one of the things we’d like to do, and that’s a conversation we’ll be having in light of these recent developments with our label partners,” Ek told investors. “I feel good about this coming year and what it means for our service pricing.”
Alexandra is a senior entertainment and media reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at [email protected]
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