Earnings reports offer a mass of details to evaluate a company’s performance. While it could be loaded with strong showings across the board, investors can home in on one unsatisfactory aspect. This is how Monness analyst Brian White explains the reaction to Spotify’s (SPOT) latest quarterly results.
“We have found the market often takes issue with a particular data point during a Spotify earnings call and the stock subsequently plummets,” the 5-star analyst noted. “However, we believe the fundamental trends continue to move in the right direction.”
In Q1, Spotify delivered revenue of €2.15 billion, in-line with Street expectations and increasing by 16.2% year-over-year. There was a beat on the bottom-line, as GAAP EPS hit -€0.25, an €0.18 improvement on the consensus estimate.
Spotify added 3 million premium subs in the quarter, a 21% year-over-year increase and hitting the high end of its guidance, seeing out Q1 with 158 million global premium subscribers. Free cash flow improved from negative €20 million in the same period last year to €41 million.
Sounds pretty decent so far, so what’s the issue? Basically, Spotify disappointed on the MAU (monthly active users) front, implying less people are using the service than anticipated.
Total MAUs increased by 24% to 356 million, below the Street’s forecast for 360 million.
What’s more, for the full year, the company lowered MAU estimates from the 407 million to 427 million range to between 402 million and 422 million – a sign that growth is slowing in the post-pandemic climate.
White, however, remains unconcerned with the MAU headlines.
“Latin America and Europe were called out as key geographies responsible for the MAU shortfall; however, the vicissitudes of this crisis have ushered in dynamics that we believe are not well understood and we view this as nothing more than noise amidst a strong, long-term, secular story,” the analyst opined.
Following the statement’s release, the shares sunk by 12% in Wednesday’s session, and as such, White views the selloff as “another attractive buying opportunity.”
Accordingly, White reiterated a Buy on SPOT shares, backed by a $380 price target. The implication for investors? Upside of 48%. (To watch White’s track record, click here)
Looking at the consensus breakdown, although not conclusive, the majority of White’s colleagues agree; based on 13 Buys, 6 Holds and 2 Sells, the stock has a Moderate Buy consensus rating. Shares are expected to be changing hands for a 35% premium a year from now, considering the average price target stands at $345.76. (See Spotify stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.