Music streaming and podcasting service Spotify (SPOT) is quite popular among young consumers. However, the company’s stock wasn’t such a big hit after Spotify’s second-quarter 2021 fiscal data was released.
In the early morning of July 28, pre-market traders waited in anticipation for Spotify’s earnings release. It was a notable event in the entertainment business, as Spotify is a giant company with a $41.3 billion market capitalization.
Depending on whose headlines you’re reading, Spotify’s results were either good, bad, or a mix of both.
Of course, the objective here is to present a fair and balanced picture of what actually happened. So, let’s delve into the specifics – and consider why the market may have been disappointed with the results. (See Spotify stock charts on TipRanks)
A Quick Look at SPOT Stock
The second-quarter earnings report was particularly crucial because SPOT stock was sitting at an important support level.
During the past year, $230 has been like a magnet for SPOT stock. The buyers have repeatedly tried to push the share price to $300, but each attempt has failed and the stock always comes back to $230.
Now, unfortunately, the immediate reaction to Spotify’s earnings release was yet another push to that $230 level – and even lower than that, actually.
After the opening bell on July 28, SPOT stock was down 8% and trading near $217. Only time will tell whether the situation will improve for Spotify’s investors, so stay tuned for further developments.
First, the Good News
In order to soften the blow, let’s start off with the good news from Spotify’s second quarter.
Three months ago, the company predicted that it would add 6 million new subscribers in Q2. As it turns out, Spotify added 7 million new subscribers.
Therefore, Spotify outperformed in this crucial area. At the end of the quarter, the company reportedly had 165 million premium subscribers globally.
Next up is the sales data, which is both good and bad. For the second quarter, Spotify lost the equivalent of 23 cents per share (the data was reported in euros) on sales of $2.81 billion.
Of course, investors won’t like the word “lost” when it comes to per-revenues. Yet, Wall Street analysts were bracing for Spotify to lose 43 cents per share, so the actual result wasn’t too bad at all.
At the same time, the analysts were expecting Spotify to post $2.7 billion in quarterly sales – not too different from the actual result.
In a written statement, Spotify Chief Executive Daniel Ek declared, “Q2 was a strong quarter for Spotify overall, with the majority of our major metrics performing better than expected.”
Here’s the Problem
However, Ek was compelled to admit that everything wasn’t perfect with Spotify.
Ek conceded that Spotify’s growth in monthly active users (MAU) was “softer than expected in the first half of the year.”
Again, it’s a “good news, bad news” type of situation. Spotify reported 365 million total MAU during the second quarter, representing an impressive 22% year-over-year improvement.
Then again, the Wall Street analysts were looking for 371 million total MAU. Hence, Spotify fell short of expectations in this crucial area.
What could have caused this under-performance? Spotify’s chief executive offered a reason – or an excuse, depending on how you choose to look at it.
“COVID-19 continued to weigh on our performance in several markets, and, in some instances, we paused marketing campaigns due to the severity of the pandemic,” Ek explained.
Wall Street Weighs In
According to TipRanks’ analyst rating consensus, SPOT is a Moderate Buy, based on 6 Buy, 5 Hold, and 1 Sell ratings. The average Spotify price target is $314.44, implying 45.7% upside potential.
The Takeaway
It’s too early to determine whether the negative market reaction to Spotify’s quarterly results will persist for days, or just hours.
Either way, this event marks a possible turning point as SPOT stock struggles to hold a key level during a pivotal time for Spotify.
Disclosure: At the time of publication, David Moadel did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
