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Spotify Sinks 7% After Wider-Than-Feared Quarterly Loss
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Spotify Sinks 7% After Wider-Than-Feared Quarterly Loss

Shares of Spotify Technology plunged 7.3% in Wednesday’s pre-market trading as the music streaming company posted a 4Q loss of €0.66 per share versus a loss of €1.14 year-on-year. Analysts were expecting a loss of €0.5 per share. Revenues rose by 17% year-on-year to €2.2 billion, beating the consensus forecast of €2.1 billion.

Spotify’s (SPOT) total monthly active users (MAUs) went up by 27% year-on-year to 345 million in 4Q which was at the top end of the company’s guidance range. For FY20, it had net additions of 74 million users versus net additions of 64 million in the year earlier.

The company stated in its earnings release, “In 2020, we believe the pandemic had little impact on our subscriber growth and may have actually contributed positively to pulling forward new signups. From a revenue standpoint, advertising was negatively affected in the back half of Q1 and persisted throughout the rest of the year.”

Looking ahead, Spotify is “optimistic about the underlying trends in the business into 2021 and beyond.”

“However, we face increased forecasting uncertainty versus prior years due to the unknown duration of the pandemic and its ongoing effect on user, subscriber, and revenue growth,” the company warned. (See Spotify Technology stock analysis on TipRanks)

In the first quarter of 2021, Spotify expects revenues to generate between €1.9 to €2.2 billion. This includes an assumption of 770 basis points headwind to year-on-year growth due to exchange rate fluctuations. It expects MAUs in 1Q to be in the range of 354 million to 364 million.

For FY21, sales are forecasted to be in the range of €9 billion to €9.4 billion. The estimate includes currency exchange rate headwinds of 370 basis points. Meanwhile, MAUs are projected to reach 407 million to 427 million for the whole year.

Ahead of the company’s 4Q earnings release, Stifel Nicolaus analyst John Egbert on Feb. 1 reiterated a Buy rating and a price target of $365 on the stock.

Egbert commented, “…the company should benefit from numerous tailwinds in 2021, including a recovering ad market, the return of more daily commutes / normal listening patterns, new geographic rollouts, ramping podcast monetization, and increased adoption of paid marketplace tools.”

The rest of the Street is cautiously optimistic about Spotify with a Moderate Buy consensus rating. That’s based on 9 analysts recommending a Buy, 2 analysts suggesting a Hold, and 1 analyst recommending a Sell. The average analyst price target of $363.45 implies 5.3% upside potential to current levels.

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