Spotify (SPOT) is set to report its fiscal first quarter earnings on Tuesday before the bell. Wall Street expects the music streamer to swing to a profit on an adjusted basis as the company continues to implement its recent “efficiency” strategy.
Over the past year, Spotify has committed to multiple rounds of layoffs in addition to price increases and other initiatives to boost top-line growth and improve margins. The company also said it will be more intentional about future investments after spending billions on its push into the crowded podcast market.
“The hurdle rate for any new type of investments will be much higher than what it has been,” Spotify CEO Daniel Ek said during the company’s fourth quarter earnings call in February.
On top of more deliberate spending, Spotify will reportedly once again raise prices after hiking the costs of certain subscription plans last summer.
According to Bloomberg, Spotify plans to raise prices by about $1 to $2 a month in five markets, including the United Kingdom, Australia, and Pakistan. The changes are expected to come at the end of April, with US prices to rise “later this year.”
Here’s what Wall Street expects from the upcoming report, according to Bloomberg consensus estimates:
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Revenue: 3.61 billion euros versus 3.04 billion euros in Q1 2023
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Adjusted earnings per share: 0.65 euros versus adjusted loss of 1.16 euros in Q1 2023
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Total monthly active users (MAUs): 618 million versus 515 million in Q1 2023
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Premium subscribers: 239 million versus 210 million in Q1 2023
Overall, analysts have been bullish on Spotify after the audio giant pledged to improve its profitability beginning in 2023 on a gross margin and operating income basis.
Spotify stock has surged more than 100% over the past year and is up 43% year to date.
“Podcast margins were near breakeven in 4Q23, and management commentary signaled that margins are likely to positively inflect and drive profitability through 2024,” Macquarie analyst Tim Nollen wrote in a note on Friday ahead of the results.
Nollen maintained his Outperform rating on shares but raised his price target to $330 from $300 “given the continued focus on profitability.”
Spotify guided to gross margins of 26.4% in Q1 after the metric came in at 26.7% in the fourth quarter. Over the long term, Spotify expects gross margins between 30% and 35% amid plans to further scale its podcasting and ads business.
Spotify spent $1 billion pushing into the podcast market over the past four years with splashy A-list deals and $400 million-plus studio acquisitions.
That spending took a significant bite out of gross margins and weighed heavily on profitability. In response, Spotify committed to several rounds of layoffs — three in 2023 alone.
Spotify CFO Paul Vogel stepped down from his position on March 31. He will be replaced by Christian Luiga, previously at Swedish aerospace and defense company Saab. Luiga will take over in the third quarter, the company said.
“We think the change is welcome given Spotify’s renewed focus on profitability,” Nollen said.
In addition to layoffs and price increases, Spotify also changed up its royalty structure, made audiobooks free to paying subscribers, and locked in new deals with popular podcasters like Joe Rogan and Alexandra Cooper of “Call Her Daddy.”
The new deals come as Spotify further revamps its podcast strategy to focus more on distribution rather than exclusivity.
The audio giant announced that Rogan’s podcast, its most popular on the platform, will be available on additional services like Apple Podcasts (AAPL), Amazon Music (AMZN), and YouTube (GOOGL) for the first time in years. Spotify will handle distribution and ad sales as it works to maximize revenue. Rogan will receive a guaranteed minimum rate and cut of the advertising revenue.
Cooper’s “Call Her Daddy” deal will have a similar structure with the podcast now available on all major audio platforms after more than two years as a Spotify exclusive. The company will maintain the exclusive rights to the podcast’s video portion.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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