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Spotify Q2 Revenue: Still the #1 Audio Streaming Service – MavenFlix

July 27, Spotify (PLACE) – Get the Spotify Technology SA report released second quarter (Q2) results that surprised many Wall Street analysts. It was much-needed news for the streaming service’s stock, which has fallen nearly 60% year-to-date.

Let’s take a closer look at the earnings release by comparing market expectations to Spotify’s actual Q2 results.

Figure 1: Spotify Q2 revenue: still the #1 audio streaming service

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Results vs Consensus:

The audio giant managed to exceed many market expectations, indicating strong growth this quarter. Spotify generated $2.91 billion in revenue, against an expectation of $2.89 billion.

The company also surprised Wall Street by announcing that it had 433 million monthly active users (MAUs) in the quarter, compared to a forecast of 429 million. That’s a big jump from the 365 MAU the company recorded in the previous quarter.

Additionally, the number of paid subscribers grew 14% year-over-year, accounting for a large portion of Spotify’s higher-than-expected revenue.

Figure 2: Spotify Q2 2022 results.

Figure 2: Spotify Q2 2022 results.

However, Spotify’s cost and margin results left something to be desired. For the second quarter, Spotify announced a gross margin of 25.3%, against 25.4% expected.

The company’s ad-supported business continues to squeeze Spotify’s gross margin. This unit has very low margins compared to the Premium segment. But Premium also posted lower margins in the second quarter than in the past four quarters.

Figure 3: Spotify's second quarter gross margin.

Figure 3: Spotify gross margin in the second quarter.

Spotify’s main problem is to generate recurring profits. Its low margins led the company to report a missed earnings per share (EPS).

Wall Street expected a loss of 68 cents per share, but Spotify reported a loss of 85 cents for the quarter.

And after?

For the third quarter, Spotify provided guidance in line with market projections. This is a positive point for investors who feared a possible slowdown in the second half.

Figure 4: Spotify tips versus consensus.

Figure 4: Spotify’s advice against the consensus.

Additionally, the company announced that it is cutting hiring by 25% for the second half of 2022.

It’s a pretty common announcement among tech startups right now. These companies are forced to cut costs in every possible way to mitigate potential problems from upcoming interest rate hikes.

Our take: Spotify is the #1 audio streaming service

Spotify clearly dominates the audio streaming segment. But low margins continue to be a problem for the company.

However, low-income segments of the business gradually represent a smaller percentage of the company’s total profit, while more profitable segments (such as podcasts) grow.

We think SPOT could be a good choice for long-term investors who like the technology sector and predict that the audio streaming segment will gain more space.

(Disclaimer: This is not investment advice. The author may have one or more stocks mentioned in this report. Additionally, the article may contain affiliate links. These partnerships do not influence the editorial content. Thank you for supporting MavenFlix)