Spotify drops after Q3 earnings

Spotify (SPOT.US), US-listed Swedish audio streaming company, is trading higher ahead of the Wall Street session launch today. Stock drops 2% after the release of the Q3 2023 earnings report that showed an unexpected profit. Let's take a quick look at the release!

Spotify turns in unexpected profit!

Earnings release from Spotify turned out to be a positive surprise with the company beating the majority of estimates. The biggest takeaway from the report is an unexpected profit company booked in Q3 2023. Market was expecting Spotify to report an operating loss of €44.6 billion while the actual report showed €32 million profit. EPS came in at €0.33, compared to €0.20 loss expected. Company noted that positive results was possible thanks to higher gross margin as well as lower personnel and marketing costs.

Strong subscriber gains

Another important takeaway from the report is that the company still manages to attract new customers, even after boosting subscription prices earlier this year. Monthly active users climbed 26% YoY to 574 million and were higher than 572.3 million expected. Number of premium subscribers increased 16% YoY to 226 million while the number of ad-supported subscribers climbed 32% YoY to 361 million. Company expects the trend to continue into Q4 2024 with expectations for net addition of 9 million premium subscribers, or almost 15% compared to Q4 2023.

Q3 2023 earnings

• Revenue: €3.36 billion vs €3.33 billion expected (+11% YoY)
  • Premium revenue: €2.91 billion vs €2.89 billion expected (+9.8% YoY)
• Monthly active users (MAUs): 574 million vs 572.3 million expected (+26% YoY)
  • Total premium subscribers: 226 million (+16% YoY)
  • Ad-supported MAUs: 361 million vs 358.8 million expected (+32% YoY)
• Average revenue per user: €4.34 vs €4.36 expected
• Gross margin: 26.4% vs 26.1% expected (24.7% a year ago)
• Operating income: €32 million vs -€44.6 million expected (-€228 million a year ago)
• EPS: €0.33 vs -€0.20 expected (€0.99 a year ago)

Q4 2023 forecasts

• Revenue: €3.7 billion vs €3.7 billion expected
• Gross margin: 26.6% vs 26.5% expected
• Operating income: €37 million vs -€15.1 million expected
• Monthly active users: 601 million vs 598.3 million expected
  • Total premium subscribers: 235 million

Source: Bloomberg Finance LP, XTB Research

A look at the chart

Taking a look at Spotify (SPOT.US) chart at D1 interval, we can see that the stock has been trading sideways since the beginning of September. A downside breakout was delivered recently and stock dropped to the $145 area - textbook range of the breakout. However, bulls quickly took over afterwards and price has climbed back above the $152.50 zone - the lower limit of a previously broken trading range. Current premarket quote suggests that this zone will be tested once again at the session launch.

Source: xStation5