Spotify Q1 2018 Earnings Steady Course But Is It Enough?

The 20,000 Foot View:  On the            May 2018 Spotify released its first quarterly earnings. The results fundamentally represent a continuation of the figures presented in Spotify’s            filing and show strong results across most performance metrics. Nonetheless, investors were not satisfied (apparently spooked by growing losses), resulting in a dip in Spotify’s stock price. Such are the challenges Spotify is going to face as a public company, with investors that are not willing to make allowances for the nuances of the recorded music business. In this report, we leave the stock valuation to the financial analysts and instead dive into Spotify’s performance metrics and what they signify.

Key Findings

• Spotify hit            subscribers, up from            million in            which is in line with                       million forecast
• Total MAUs                       million, while ad supported users            by            on            2017 (a slightly            rate than subscribers) to reach           
• Europe continues            be Spotify’s number one region                       million subscribers representing            of the           
• Europe added            most subscribers year on year            million), followed by North America            Latin America (both six million)            Rest of World added three           
• Ad supported            between            2017 and            2017 was            to or higher than subscriber            in all regions except Europe
• Total gross            was            in            2018, more than            the            registered one year earlier
• Ad-supported gross            increased dramatically from            to            reflecting            this is where Spotify got            biggest rights holder rate cuts
• Premium ARPU            down to            the lowest level            2016 to            2018
• Spotify generated            average of            gross profit per            with music rights holders earning            average of           
• When compared            Netflix’s            2015 results, Spotify has            identical subscriber but lower ARPU            higher costs of sales

Companies and brands mentioned in this report: AOL, EMI, Spotify, Seagram, Thorn Electrical Industries, Universal Music, Vivendi, Warner Music