Spotify (SPOT) Earnings Deep Dive

Spotify is one of the best examples of a company utilizing AI to make its products better and its users happier, and support its internal workings after mass layoffs (a -25% reduction in workforce).

Last quarter the company recorded record quarterly profit and a +19% YoY increase in monthly active users, counting 615 million globally.

Its stock is up nearly +55% YTD and +70% YoY.

But even Spotify acknowledges it will be difficult to continue growing at its previous pace, noting on its earnings call:

"While we anticipate continuous robust growth going forward, 2023 was a truly standout year and should not be a based on expectation for every subsequent year."

The company also admitted it may have pulled back too much in its marketing spend, so expect higher costs in the second quarter.

Couple these notes with a slow down in worldwide web traffic (-8.3% from last month) and we are sidelined for this earnings event, with a slightly bearish lean.

Long-term, the company still has several things going for it:

SPOT boasts the happiest consumers among streaming music peers, driven largely by its integration of AI to promote music discovery and personalized playlists.

We also see low signs of churn, with “cancel spotify” queries on the downtrend.

Even as it has decreased podcast spend, it remains the market leader, with Apple podcasts coming up seriously short.

Spotify continues to search for ways to increase user engagement and beef up video content.

• Encouraging Podcast Engagement: Spotify has introduced a comments section for podcasts, allowing users to provide feedback and engage with content more interactively. Hosts can moderate comments, while the Spotify for Podcasters app now includes statistics for comments and fan interactions. Our take: historically speaking, are anonymous comments net positive on video content?

• Expansion of Video Content: Spotify has seen the number of video podcasts grow to more than 250,000, up from 100,000 last year, with average daily streams increasing by 39% year-over-year in Q1. Additionally, Spotify has added support for music videos, aiming to attract more users and enhance ad revenue opportunities.

Bottom line: this is a great company, but we see risk to the downside for this earnings event. We aren't counting out long-term growth.