• 2Q23 results were within expectations. 1H23 revenue was at 45% of our FY23e forecasts, with adj. net loss (excl. one-offs) EUR25mn lower than our FY23e forecasts. Net loss was impacted by -EUR135mn in restructuring related charges.
• Record MAU growth with 36mn new users, attracting new Gen Z listeners through better podcast content. 3Q23 guidance is for slower net add of 21mn MAUs and revenue growth of 9% YoY.
• Renewed focus on efficiency with headcount falling 2% QoQ, cut underperforming podcasts and price increases in >50 markets.
• We widen FY23e net loss by -EUR423mn to account for higher restructuring, finance, and tax charges, while keeping FY23e revenue unchanged. We maintain ACCUMULATE with a reduced DCF target price of US$162.00 (prev. US$165.00), with a WACC of 7.5%, and a terminal growth rate of 4%.

The Positives

+ User growth continues to outperform, highest MAU growth.  SPOT continues to attract more users onto its platform, with a record 36mn new MAUs in 2Q23, and 551mn MAUs to end the quarter (27% YoY). Similarly, Premium Subscribers also did well, with YoY growth accelerating over the last 4 quarters (2Q23: 17% YoY) as conversion rates remained healthy. Premium subscriber growth usually lags MAU growth as users gradually convert into paying subscribers.

+ Efficiency still front and centre. SPOT reiterated its focus on improving operational efficiency, evident from its reduction in headcount by 2% QoQ and downsizing of its real estate footprint in 2Q23. SPOT has also raised its hurdle rate for new investments, and also cut underperforming podcast content from its content library. The company also guided that OPEX as % of revenue should continue to fall over the long term as efficiency improves.

The Negative

– Losses widen due to EUR135mn in restructuring-related charges. 2Q23 operating loss stood at -EUR247mn, EUR53mn wider than a year ago. More than half the losses (-EUR135mn) were a result of charges relating to: 1) shutting down underperforming podcasts; 2) reducing real estate footprint; and 3) headcount reductions. Removing these charges, adj. operating loss of -EUR112mn would have been slightly ahead of guidance.

MAU (Monthly Average User): average number of users during a month.

ARPU (Average Revenue per User): premium revenue for period divided by average number of premium subscribers for same period.