Spotify Technology S.A. – Confidence in user growth May 17, 2023 364

PSR Recommendation: ACCUMULATE Status: Maintained
Target Price: 165.00
  • 1Q23 results were within expectations. 1Q23 revenue at 22% of our FY23e forecasts, with adj. net loss (excl. one-offs) EUR80mn lower than our FY23e forecasts.
  • Record 1Q user additions with 26mn, MAU/premium subscribers of 515mn/210mn beat guidance with broad-based outperformance across all regions. 1Q23 operating loss of EUR156mn beat guidance by ~20% on lower marketing spend.
  • We maintain ACCUMULATE with a raised DCF target price of US$165.00 (prev. US$128.00) to account for increasing user growth and stronger long-term pricing power. We maintain a WACC of 7.5%, but raise our terminal growth rate to 4% (prev. 3%) due to an acceleration in user additions and higher MAU to Premium conversion rates.


The Positives

+ Record user additions for 1Q, both MAU/premium subscriber growth beat guidance.  SPOT gained 26mn MAUs in 1Q23, a record number for the quarter; 515 mn MAUs beating guidance by 15mn; and 210mn Premium Subscribers, 3mn above guidance. The company also saw an acceleration in MAU retention and subscriber growth (1Q23: 22% YoY vs 4Q22: 20% YoY), with engagement trends also improving. MAU to Premium subscriber conversion rates also remained at healthy levels, which is important given MAUs are the main funnel that drives Premium subscriber additions.


+ Operating loss beat guidance on lower-than-expected spending. Operating losses fell sequentially by 33% QoQ to -EUR156mn on the back of reduced marketing spend.  SPOT is also looking at reducing content production, and optimizing its real estate footprint in further efforts to reduce expenses. Improvements were offset by a EUR41mn severance-related charge and EUR12mn of social charges. 1Q23 operating loss was ~20% better than guidance, with operating margin improving sequentially from -7.3% in 4Q22 to -5.1% in 1Q23.


The Negative

– Revenue missed guidance slightly on weakness in advertising. SPOT’s 1Q23 revenue of EUR3.0bn slightly underperformed its own guidance of EUR3.1bn, citing a ~6% underperformance in Ad revenue as a drag. Additionally, Premium ARPU declined 1% YoY as a result of additional growth in family and duo plans vs single plans. Even with the decline, Premium ARPU was still within the company’s estimates, with the expectation of at least 1 price hike on the horizon this year.


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.



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Jonathan Woo
Research Analyst

Jonathan covers the US technology sector focusing on internet companies. Formerly a national and professional athlete, he graduated from the University of Oregon with a Bachelor’s Degree in Social Sciences.

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