Spotify’s subscription forecast is weak and slams stock, but CEO says Joe Rogan wasn’t the reason

Spotify Technology SA executives said Wednesday they expected fewer subscriber additions in the first quarter than expected on Wall Street, sending shares tumbling, but they argued the failure of the forecast was not not due to recent controversy.

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guided for 1 million fewer subscriber net additions in Q1 2022 than analysts had expected, and did not provide annual forecasts as they have in the past. Shares plunged more than 18% in after-hours trading immediately after the report was released on Wednesday, although they rebounded to a loss of less than 11% after Spotify’s chief financial officer gave a little color on expectations for the year during a conference call. .

Spotify found itself in the uncomfortable spotlight in early 2022, as a New Year’s Eve episode from podcaster Joe Rogan – whom the streaming service signed to an exclusive $100 million deal in 2020 – saw a discredited doctor for spitting out inaccurate information about COVID-19 vaccines. Hundreds of scientists and members of the medical community have openly called on Spotify to implement a misinformation policy, and prominent musicians like Neil Young and Joni Mitchell have publicly called for their music to be removed from the service unless Spotify takes action. to counter Rogan’s influence.

“Spotify has become the hotbed for potentially deadly COVID misinformation,” Young wrote in a blog post confirming that his music was removed from the service. “Lies are sold for money.”

Customers joined the protest, openly canceling their Spotify subscriptions, leading to a statement from the company’s chief executive on Sunday. Daniel Ek said Spotify would add content warnings to podcasts containing discussions about COVID-19.

Read more about the Spotify controversy: “There’s a half-life to these protests and boycotts”

Executives avoided mentioning the controversy or Rogan in a letter to shareholders, though Ek discussed it on a conference call later Wednesday.

“I am delighted that Spotify is already implementing several unprecedented measures to combat misinformation and ensure greater transparency,” he said, summarizing a brief discussion. “We believe we have a critical role to play in supporting creator expression while balancing it with the safety of our users, and we will continue to partner with experts and invest heavily in our platform feature teams. and our product capabilities to meet this ever-changing need. to.”

Asked specifically about Rogan and podcast policies by an analyst at the top of a Q&A session, Ek said, “We don’t change our policies based on one creator, nor do we change them based on a media cycle or a call from someone else.”

“Our policies have been carefully written with input from a number of internal and external experts in this area, and I believe they fit our platform,” Ek said. “And while Joe has a massive following, in fact being the #1 podcast in over 90 markets, he must also adhere to these policies.”

While optimistic about 2022 in general, executives weren’t specific, eschewing an annual forecast they’ve provided in previous years. In the letter, they said that “since the vast majority of our initiatives are multi-year in nature and measured as such, we no longer plan to issue annual guidance.”

On the call, Chief Financial Officer Paul Vogel provided some color on the yearly trends, saying, “We don’t expect any material change in the net growth trajectory for MAUs and submarines in 2022 compared to the net growth we have seen in 2021,” but reiterated that the annual forecast would end.

For the first quarter, Spotify has guided for 183 million total premium subscribers, suggesting they expect to add 3 million net new subscribers in the quarter, down 1 million from analysts’ average estimates. 184 million. When asked specifically if that advice had been affected by the recent Rogan controversy-related cancellations, Ek replied, “Uh, no.”

“So the easy answer is that we don’t reflect any unsubscribe from the recent Joe Rogan case in general,” Ek said. “What I would say is that it is too early to know what the impact will be. And usually, when we’ve had controversies in the past, those are measured in months, not days.

Read: CD sales increased in 2021 for the first time in 17 years

Executives did not reveal any specific information about recent subscription cancellations, after hitting 180 million subscribers at the end of 2021 thanks to 25 million net additions in 2021.

“As we move forward into 2022 and beyond, the opportunities before us are great and we see an enormous amount of green fields on the horizon,” they wrote in the letter.

Spotify also guided for first-quarter revenue of 2.6 billion euros, matching the average analyst estimate, according to FactSet. With the ongoing controversy and Spotify’s current business model, analysts have focused more on subscription forecasts than revenue as the report approaches and annual forecasts.

“The key to watch here is the pace of premium net additions in the FY22 forecast,” Evercore ISI analysts wrote in a preview of Spotify’s report. “While we expect further geographic expansions to serve as a tailwind for [user] growth, we would seek comments on the potential implication of emerging market deployment on submarine conversion, in particular. because pricing plans vary from one geographical area to another.

Spotify reported a fourth-quarter loss of 39 million euros ($44.1 million), or 21 cents per share, an improvement from a loss of 66 cents per share in the holiday quarter ago. a year. Revenue hit 2.69 billion euros from 2.17 billion last year, topping $3 billion for the first time and beating analysts’ expectations, as total subscribers grew by 16 % during the last three months of the year. Analysts on average had expected a loss of 51 cents per share on sales of 2.65 billion and total premium subscribers of 180 million, according to FactSet.

Spotify attributed a strong majority of its revenue to its premium subscription offering, which totaled 2.3 billion euros in the fourth quarter while ads accounted for 394 million euros. Some analysts believe the smaller segment of advertising revenue should grow much faster as Spotify moves beyond music into areas where advertising is more lucrative.

“As Spotify has evolved from a music platform to an audio platform (podcasting, live audio, audiobooks), it has unlocked the potential for a robust advertising business that is now too big for investors unaware of it,” analysts at Lightshed Partners wrote Wednesday morning, while Spotify stock launched at a “buy” rating with a price target of $260.

See also: Netflix stock has its best day in a year as analysts say slowing subscribers don’t tell the whole story

For the full year, Spotify posted revenue of 9.67 billion euros ($10.9 billion), surpassing $10 billion for the first time after recording sales of 9.47 billion in 2021. The music streaming service remains unprofitable but came close to breaking even in 2021, posting an annual loss of €34 million after losing €581 million in 2020.

Spotify stock has suffered during the controversy, falling 18% so far this year, but it continued a previous downward trajectory. Stocks are down 44.4% in the past 12 months, as the S&P 500 SPX Index,
gained 18.8%.

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