Spotify (SPOT) announced its fourth-quarter financial results before the bell on Tuesday, presenting a mixed picture with a bigger-than-expected loss and a beating in gross margins.
Total monthly active users exceeded expectations, reaching 489 million against a forecast of 478 million, with premium and ad-supported subscribers beating estimates.
Spotify stock, which lost more than two-thirds of its value in 2022, had risen 6% in pre-market trading but gave up most of those gains after the earnings release.
Here are Spotify’s fourth quarter earnings compared to Wall Street consensus estimates, as compiled by Bloomberg:
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Returned: 3.17 billion euros against 3.18 billion euros expected
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Loss per share: –€1.40 against -€1.30 expected
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Total number of monthly active users: 489 million against 478 million expected
Premium subscribers increased by 10 million in the quarter to 205 million; ad-supported users jumped 22 million to 295 million. Spotify said it expects first-quarter subscribers to reach 500 million, beating estimates of 492.2 million.
The company attributed the increased losses to higher personnel costs, mainly due to growth in the workforce and higher advertising costs, in addition to currency fluctuations.
Spotify shares, despite the post-earnings rally, are still down around 40% from a year ago and more than 65% below their all-time high close of $364.59 in February 2021.
Investors remained hyper-focused on Spotify’s declining gross margins, which beat expectations of 24.5% in the fourth quarter to 25.3% “mainly due to lower capital expenditure and popularity. general of music. Spotify guided a decline in first-quarter gross margins to 24.9% amid “severance charges” after the company laid off 6% of its workforce last week.
Spotify said it expects gross margins to be between 30% and 35% over the long term as part of plans to further expand its podcasting and advertising businesses. However, execution remains murky amid macroeconomic challenges.
Free cash flow (FCF), another key metric for investors, turned negative in the fourth quarter amid higher medium- and long-term investments. After posting positive free cash flow of €35 million in the third quarter, the company posted negative FCF of -€73 million (against estimates of -€69 million) in the fourth quarter.
Spotify chief financial officer Paul Vogel, who previously called 2022 the peak investment year, warned of reversal during the company’s third quarter earnings call: “Given the timing of the quarters , we could see free cash flow turn negative in the fourth quarter, but we still expect to be free cash flow positive for the year and moving forward.”
Free cash flow for the full year indeed remained positive – a trend Spotify said it expects to continue on an annual basis.
One such heavily invested area has been podcasts, where Spotify has spent over $1 billion over the past four years.
The recently announced layoffs, coupled with a corporate reorganization focused on “efficiency”, suggest Spotify may be looking to move away from that strategy, particularly with Dawn Ostroff as chief content officer.
Under his watch, Ostroff led expensive, high-profile deals, including a $200 million deal with Joe Rogan.
Spotify said the company is actively considering raising prices on its US-based tiers. Apple Music and YouTube Premium increased the prices of their respective plans late last year.
“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 on the earnings call. Spotify’s third quarter. “I feel good about this coming year and what it means for our service pricing.”
Investors will be on the lookout for any price increase announcements during the company’s fourth quarter earnings call.
Alexandra is a senior entertainment and media reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com
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