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What Our Stock Experts Think of Spotify Prior to Q1 Earnings
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Shares of Spotify (SPOT - Free Report) were up more than 1% through early afternoon trading Tuesday, just one day before the music streaming giant is set to release its first quarter fiscal 2018 results—its first earnings report as a publicly-traded company.
Spotify made waves went it began trading on the New York Stock Exchange through a unique direct listing about a month ago. The rare IPO did not feature underwriters and likely saved the Swedish company plenty of upfront costs, meaning that Wednesday’s report should be a relatively true indicator of its current balance sheet.
Of course, predicting exactly what will happen when such a new stock reports is extremely challenging. According to our current Zacks Consensus Estimates, analysts are calling for Spotify to report an adjusted loss of 34 cents per share and total quarterly revenues of $1.40 billion. But even these figures can be misleading.
Since Spotify is a fresh stock, not many analysts have initiated direct coverage and provided earnings estimates for it. In fact, our Zacks Consensus Estimates are based on just two estimates, and the two analysts that have published these estimates do not seem to agree very well; our high estimate is calling for a per share loss of 19 cents, while our low estimate is calling for a 49 cent loss.
The discrepancy between these two projections might make some investors hesitant to react strongly to Spotify’s actual earnings results. What’s more, plenty of folks are focused on completely different things when recently-public companies file their first few reports. Zacks Stock Strategist Brian Bolan, for example, thinks the top-line result is more valuable.
“The bottom line isn’t as important because there tends to be a lot of ‘noise’ in the first report by almost any company,” Bolan said. “User growth and what kind of real pricing power the company has will be key. Down the road profitability will come, but for now, it is all about MAUs or whatever number they will publish.”
The latest figures from January had Spotify at well over 100 million total active users worldwide, with an impressive 70 million of those paying about $9.99 per month to access its premium features. The firm generated about 4.1 billion euros in 2017, and the vast majority of that came from premium subscribers.
Spotify’s subscription-based business model has drawn comparisons to Netflix (NFLX - Free Report) . Investors who scooped up SPOT shares at their debut price will obviously hope the stock can replicate Netflix’s remarkable returns over the years, and to do that, many think the company will need to report consistent user growth.
“Spotify said it had 70 million paying subscribers in January. How much has that grown? Like Netflix, subscribers are key. It has been increasing it by 5 or 6 million a quarter. If it keeps or adds to that pace, that could be a boost for the stock,” said Zacks Stock Strategist Tracey Ryniec.
But the comparisons to Netflix do not stop at the two companies’ shared subscription model. Some investors have already started looking much further down the line in an effort to predict how Spotify can break itself from the grips of its astronomical royalty payments.
Spotify will always owe a massive chunk of its top line to record labels and artists in the form of royalties. It has developed relationships with basically all of the music industry’s top publishers, and its payments to these powerhouses account for a sizeable portion of the entire industry’s global revenue.
This obviously underscores the scope of the music streaming revolution, but it also poses challenges for Spotify as it looks to move toward profitability. For Zacks Content Writer Ben Rains, this is the biggest question facing Spotify ahead of its Q1 report
“For all the talk about Spotify becoming the next Netflix, it won’t be able to experience those same gains or profitability unless it can negotiate far better deals with the companies Spotify pays for practically all of its music,” he said.
Rains also argues that it is important to remember that Spotify does not actually own any of the content its users love. Sure, Spotify has been able to negotiate lower fees a few times, but that is not exactly the Netflix model.
Rains elaborated, “Spotify’s growth has in fact forced the big record labels to lower their rights fees, but in the long-run Netflix knew it couldn’t continue to rely on other content providers as the world moved more and more toward a completely streaming future. Therefore, Netflix committed to spend billions to produce its own movies and television shows.”
Spotify shares are up about 8% since the company’s debut last month, but with estimates looking sparse, user growth unpredictable, and few accurate comparisons to be made, there is no telling exactly what the stock will do tomorrow.
Regardless, the world leader in music streaming will not simply fade into irrelevance—even with a bad first report—so this stock will continue to be one to watch in the coming weeks and months.
Want more market analysis from this author? Make sure to follow @Ryan_McQueeneyon Twitter!
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Image: Bigstock
What Our Stock Experts Think of Spotify Prior to Q1 Earnings
Shares of Spotify (SPOT - Free Report) were up more than 1% through early afternoon trading Tuesday, just one day before the music streaming giant is set to release its first quarter fiscal 2018 results—its first earnings report as a publicly-traded company.
Spotify made waves went it began trading on the New York Stock Exchange through a unique direct listing about a month ago. The rare IPO did not feature underwriters and likely saved the Swedish company plenty of upfront costs, meaning that Wednesday’s report should be a relatively true indicator of its current balance sheet.
Of course, predicting exactly what will happen when such a new stock reports is extremely challenging. According to our current Zacks Consensus Estimates, analysts are calling for Spotify to report an adjusted loss of 34 cents per share and total quarterly revenues of $1.40 billion. But even these figures can be misleading.
Since Spotify is a fresh stock, not many analysts have initiated direct coverage and provided earnings estimates for it. In fact, our Zacks Consensus Estimates are based on just two estimates, and the two analysts that have published these estimates do not seem to agree very well; our high estimate is calling for a per share loss of 19 cents, while our low estimate is calling for a 49 cent loss.
The discrepancy between these two projections might make some investors hesitant to react strongly to Spotify’s actual earnings results. What’s more, plenty of folks are focused on completely different things when recently-public companies file their first few reports. Zacks Stock Strategist Brian Bolan, for example, thinks the top-line result is more valuable.
“The bottom line isn’t as important because there tends to be a lot of ‘noise’ in the first report by almost any company,” Bolan said. “User growth and what kind of real pricing power the company has will be key. Down the road profitability will come, but for now, it is all about MAUs or whatever number they will publish.”
The latest figures from January had Spotify at well over 100 million total active users worldwide, with an impressive 70 million of those paying about $9.99 per month to access its premium features. The firm generated about 4.1 billion euros in 2017, and the vast majority of that came from premium subscribers.
Spotify’s subscription-based business model has drawn comparisons to Netflix (NFLX - Free Report) . Investors who scooped up SPOT shares at their debut price will obviously hope the stock can replicate Netflix’s remarkable returns over the years, and to do that, many think the company will need to report consistent user growth.
“Spotify said it had 70 million paying subscribers in January. How much has that grown? Like Netflix, subscribers are key. It has been increasing it by 5 or 6 million a quarter. If it keeps or adds to that pace, that could be a boost for the stock,” said Zacks Stock Strategist Tracey Ryniec.
But the comparisons to Netflix do not stop at the two companies’ shared subscription model. Some investors have already started looking much further down the line in an effort to predict how Spotify can break itself from the grips of its astronomical royalty payments.
Spotify will always owe a massive chunk of its top line to record labels and artists in the form of royalties. It has developed relationships with basically all of the music industry’s top publishers, and its payments to these powerhouses account for a sizeable portion of the entire industry’s global revenue.
This obviously underscores the scope of the music streaming revolution, but it also poses challenges for Spotify as it looks to move toward profitability. For Zacks Content Writer Ben Rains, this is the biggest question facing Spotify ahead of its Q1 report
“For all the talk about Spotify becoming the next Netflix, it won’t be able to experience those same gains or profitability unless it can negotiate far better deals with the companies Spotify pays for practically all of its music,” he said.
Rains also argues that it is important to remember that Spotify does not actually own any of the content its users love. Sure, Spotify has been able to negotiate lower fees a few times, but that is not exactly the Netflix model.
Rains elaborated, “Spotify’s growth has in fact forced the big record labels to lower their rights fees, but in the long-run Netflix knew it couldn’t continue to rely on other content providers as the world moved more and more toward a completely streaming future. Therefore, Netflix committed to spend billions to produce its own movies and television shows.”
Spotify shares are up about 8% since the company’s debut last month, but with estimates looking sparse, user growth unpredictable, and few accurate comparisons to be made, there is no telling exactly what the stock will do tomorrow.
Regardless, the world leader in music streaming will not simply fade into irrelevance—even with a bad first report—so this stock will continue to be one to watch in the coming weeks and months.
Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>