Music streaming and podcast service Spotify (PLACE) is quite popular with 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 of Spotify’s earnings release. It was a remarkable event in the entertainment industry as Spotify is a giant company with a market cap of $41.3 billion.
Depending on whose headlines you read, Spotify’s results were good, bad, or a combination of both.
Obviously, the goal here is to provide a fair and balanced view of what actually happened. So let’s dig deeper into the details – and consider why the market may have been disappointed with the results. (To see Spotify stock charts on TipRanks)
A quick look at SPOT stock
The second quarter earnings report was particularly crucial as SPOT stock was at a key support level.
Over the past year, $230 has been like a magnet for SPOT stocks. The buyers have repeatedly tried to push the stock price towards $300, but every attempt has failed and the stock always comes back to $230.
Unfortunately, the immediate reaction to Spotify’s earnings release was another push to that $230 level — and even lower than that, in fact.
After the opening bell on July 28, SPOT stock fell 8% and traded near $217. Only time will tell if the situation for Spotify’s investors will improve, so stay tuned for further developments.
First the good news
To soften the blow, let’s start with the good news from Spotify’s second quarter.
Three months ago, the company predicted it would add 6 million new subscribers in the second quarter. It turns out that Spotify has added 7 million new subscribers.
That’s why Spotify outperformed in this crucial area. At the end of the quarter, the company reportedly had 165 million premium subscribers worldwide.
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 (data reported in euros) on revenue of $2.81 billion.
Of course, investors won’t like the word “lost” when it comes to per-earnings. Still, Wall Street analysts braced for a loss of 43 cents a share from Spotify, so the actual result was not that bad.
At the same time, the analysts expected Spotify to achieve quarterly revenue of $2.7 billion — not much different from the actual result.
In a written statement, Spotify Chief Executive Daniel Ek said, “Q2 was a strong quarter for Spotify overall, with most of our key metrics outperforming expectations.”
Here is the problem
However, I had to admit that not everything was perfect with Spotify.
Ek admitted 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 situation. Spotify reported 365 million MAU in the second quarter, representing an impressive 22% year-over-year improvement.
On the other hand, Wall Street analysts were looking for 371 million MAU in total. Therefore, Spotify fell short of expectations in this crucial area.
What could be the cause of this underperformance? Spotify’s CEO 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 cases we interrupted marketing campaigns due to the severity of the pandemic,” explains Ek.
Wall Street weighs in
According to TipRanks’ analyst consensus, SPOT is an average buy, based on 6 buy, 5 hold and 1 sell ratings. The average Spotify price target is $314.44, implying upside potential of 45.7%.
It’s too early to tell whether the negative market reaction to Spotify’s quarterly results will last for days or just hours.
Either way, this event marks a potential turning point as SPOT stock struggles to hold significant levels during a pivotal time for Spotify.
Disclosure: At the time of publication, David Moadel had no position in any of the securities mentioned in this article.
Disclaimer: The information in this document is for informational purposes only. Nothing in this section should be construed as a solicitation to buy or sell securities.