Spotify Technology S.A. – Volume and price growth November 1, 2022 356

PSR Recommendation: BUY Status: Maintained
Target Price: 111.00
  • 3Q22 revenue beat expectations modestly on FX tailwinds; earnings missed due to higher than expected expenses. 9M22 revenue at 71% of our FY22e forecasts, with net loss EUR130mn more than our FY22e forecasts.
  • Total MAUs/Premium Subscriptions beat guidance, showing resilience through an uncertain macro environment, up 20%/13% respectively. Premium ARPU was up 7% YoY.
  • Gross Margin of 24.7% missed guidance by 0.5%, with higher-than-expected expenses led by 14% negative FX movements.
  • We maintain a BUY recommendation with a reduced DCF target price of US$111.00 (prev. US$117.00) as we lower FY22e net loss forecasts by ~EUR500mn on the back of higher expenses.




The Positives

+ 3Q22 revenue beat due to outperformance in volume and price growth. 3Q22 revenue of EUR3.0bn beat guidance marginally by EUR36mn, representing a 21% YoY increase, largely due to the outperformance in Premium Subscriber growth, and some FX tailwinds. Premium Subscribers grew 13% YoY to 195mn, beating guidance by 1mn, with Premium ARPU also increasing about 7% YoY (2% QoQ). Premium ARPU continued its uptrend with its 5th consecutive quarter of YoY growth to EUR4.64, showing strong momentum in pricing. Both Subcriber and ARPU growth led to a 22% YoY increase in Premium revenue for 3Q22.

+ MAU growth re-accelerating. SPOT ended 3Q22 with Total MAUs of 456mn, beating guidance by 6mn, representing a 20% YoY increase (5% QoQ). MAU growth saw a re-acceleration, mainly attributed to strength across LATAM and Rest of World regions as a result of successful marketing campaigns.



The Negatives

– Gross margins missed guidance by 0.5%. Gross margin for 3Q22 came in at 24.7%, missing guidance by 0.5% as a result of 3 main factors: 1)accrual adjustment due to renewal of publishing contracts; 2)macroeconomic slowdown; 3)FX headwinds affecting cost of revenue. Premium gross margin was 28.0%, down 1% YoY, with Ad-Supported Gross Margin at 1.8% for 3Q22, down 9% YoY due to slower-than-expected ad revenue growth and increasing non-music content spend.

– Higher-than-expected expenses leading to greater net losses. Operating expenses for 3Q22 grew 65% YoY, led by higher headcount growth due to expansion, higher advertising costs, and 14% negative FX movements. Net loss for 3Q22 was EUR166mn, with YTD net loss at EUR160mn.


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

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

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Profile photo of Jonathan Woo

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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