Daniel Ek, the chief executive of Spotify Technology S.A. (Spotify stock), suggested on Tuesday hiking rates in the United States after the music-streaming service predicted worse profitability due to a slowdown in advertising growth.
Ek stated during the results conference call for the firm that he thought Spotify (NYSE:SPOT), -12.24% has “considerable pricing leverage,” in part because of lower churn than competitors like Apple Music, which recently increased its own streaming costs.
In light of these recent changes, he stated, “Again, in specific, largely to the U.S.-based pricing hikes, it is one of the things that we would like to do, and this is a dialogue we will have with our label partners.”
I feel pretty positive about this next year and what that entails in terms of price in respect to our service, he continued.
According to Ek, over the last two years, Spotify has implemented over 46 price hikes in markets all over the world.
In other parts of the discussion, executives emphasized that the revenue from Spotify’s ad business was a minor fraction, and that outside of that sector, they had seen minimal impact from more general concerns about the state of the world economy. Although they claimed that expanding the business would hurt profitability, more users had been attracted.
However, after the company’s projection and a larger-than-expected third-quarter loss, shares fell.
Spotify Stock Losses
The Luxembourg-based business recorded a net loss of 166 million euros ($165.5 million), or 99 cents per share, for the third quarter, as opposed to a profit of 2 million euros, but a loss of 41 cents per share, in the same period last year.
Sales totaled 3.036 billion euros ($3.03 billion), up from 2.51 billion euros in the same period last year. The gross margin was 24.7%.
“Gross margin fell short of estimates, mostly as a result of an
Unfavorable revision to prior-period rights-holder liabilities assumptions, according to Spotify officials in the company’s earnings papers. Given the difficult macro climate, slower-than-expected advertising growth also had an impact on the margin.
With 195 million premium customers and 456 million total monthly active users, the corporation ended the quarter.
Spotify was projected to announce a loss of 84 cents per share, or 85 eurocents, on sales of $2.982 billion, or 3.017 billion euros, according to analysts surveyed by FactSet. They anticipate there will be about 194 million premium customers and 449.4 million monthly active users.
Due to a favorable foreign exchange rate, Spotify projected fourth-quarter sales of 3.2 billion euros, versus FactSet’s estimate of 3.209 billion euros. Additionally, Spotify stated that it anticipated gross margins of 24.5%, which were offset by “investments in non-music content and product development efforts” and podcast revenue.
With 479 million total monthly active users, Spotify projected 202 million premium customers, closely in line with FactSet’s projections. 470.68 million were anticipated by FactSet.
On Tuesday, shares decreased 6.7% after hours.
Analysts were searching for information on digital ad expenditure and subscriber growth prior to the earnings report because they were worried about a possible recession. As significant expenditures in certain genres have a negative impact on revenues, Wall Street was also attempting to measure consumer interest in Spotify’s podcasts and audiobooks.
In an effort to produce better outcomes in the upcoming year, analysts have also concentrated more on the company’s margins.
According to Truist analyst Matthew Thornton, “we think the firm has to show significant margin progress/evidence for the stock to perform.”
This year marked “the peak year of investment in original podcasting material,” according to Raymond James analysts in a report published this month. This should reduce margin pressure. However, they claimed that investments in audiobooks may balance the decline in spending on podcasts.
At a conference in September, Spotify’s Chief Financial Officer Paul Vogel observed that advertising was “a little up and down right now,” a pattern that persisted into the third quarter following a slowdown in the final two weeks of June. But he remained optimistic about the business as a whole.
He stated, “We’re completely aware of what’s happening internationally. But fortunately for us, it hasn’t changed anything about our numbers.
While the macro climate continues to be unpredictable, Ek stated during Spotify’s most recent earnings call in July that “we’re presently not seeing any substantial impact on our forecasts for users or subs growth from the economic slowdown.” Nevertheless, he pointed out that Spotify has reduced recruiting by 25%.
According to a recent article in the Wall Street Journal, TikTok company ByteDance may increase its battle with Spotify.
Following Kanye West’s recent anti-Semitic comments, Hollywood mogul Ari Emanuel urged Spotify and other companies to quit doing business with him in an opinion piece published in the Financial Times this month. The platform has previously been under fire from musicians who complain that streaming providers pay too little, as well as after signing a significant podcasting agreement with Joe Rogan.
Year to date, Spotify stock has decreased by 58%. Comparatively, the S&P 500 Index SPX, -0.47% has decreased by 19% during that time.
Featured Image- Unsplash @ Alexander Shatov
Author Valerie Remorosa 
